Foundations of market power in monetary economies

Michael Choi and Guillaume Rocheteau

Journal of Economic Theory, 2024, vol. 222, issue C

Abstract: We study the foundations of firms' market power in a continuous-time model where agents are price-makers who interact explicitly with each other. Market power arises from the existence of rents, the size of which depends on consumers' outside options, and firms' ability to appropriate these rents through rent seeking. We study how measures of market power (e.g., markups, concentration) are affected by search frictions, monetary policy, and self-fulfilling beliefs. An increase in the nominal interest rate affects market power by changing consumers' payment capacity and the value of their outside options, and by altering firms' rent-seeking behavior.

Keywords: Search; Bargaining; Market power; Rent seeking; Money (search for similar items in EconPapers)
JEL-codes: D82 D83 E40 E50 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:222:y:2024:i:c:s0022053124001376

DOI: 10.1016/j.jet.2024.105931

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