General equilibrium, welfare and policy when firms have market power

Diego Moreno and Emmanuel Petrakis

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We consider a market economy in which consumption goods are produced using high- and low-skilled labor. When rms have market power, the economy's surplus, aggregate income, employment, wages, and labor share are smaller than those under perfect competition. A low binding minimum wage alleviates the ineficiency and distributional bias caused by market power, without creating unemployment. Revenues from non-distortionary corporate taxes may be used to fund distributional policies (e.g., unemployment subsidies) and/or public spending enhancing production possibilities (e.g., education/innovation programs).Free entry leads to eficient entry under perfect competition but may lead to either excessive or insuficient entry when rms have market power.

Keywords: General; Equilibrium; Market; Power; Oligopoly; Monopoly; Wage; Markdowns; Labor; Share; Income; Distribution; Minimum; Wages; Unemployment (search for similar items in EconPapers)
JEL-codes: D4 D5 D6 L1 L4 (search for similar items in EconPapers)
Date: 2024-12-13
New Economics Papers: this item is included in nep-com and nep-reg
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Working Paper: General equilibrium, welfare and policy when firms have market power (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:45283

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