The Welfare Cost of Market Power. Accounting for Intermediate Good Firms

Geir H. Bjertnæs ()
Additional contact information
Geir H. Bjertnæs: Statistics Norway, https://www.ssb.no/en/forskning/ansatte

Discussion Papers from Statistics Norway, Research Department

Abstract: The market power of firms in intermediate good markets is found to generate a substantial welfare cost. Markup pricing of intermediate good firms contributes to increase the wedge between the marginal product of labor and the wage rate received by workers, as intermediate good firms add additional markups to the unit cost of a consumer good. This creates an additional wedge in the labor market, and is costly due to the existing substantial tax wedge in the labor market. The welfare cost of distortions in the supply of labor created by market power of firms is found to be more than 40 times larger than the welfare cost of distortions in the allocation of consumer goods created by differences in market power of firms. This welfare cost is substantial compared to previous estimates.

Keywords: Monopoly; Taxation; Welfare costs (search for similar items in EconPapers)
JEL-codes: D60 H20 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-com, nep-mic and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ssb.no/a/publikasjoner/pdf/DP/dp502.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ssb:dispap:502

Access Statistics for this paper

More papers in Discussion Papers from Statistics Norway, Research Department P.O.Box 8131 Dep, N-0033 Oslo, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by L Maasø ().