General Equilibrium Oligopoly and Ownership Structure

Xavier Vives and Azar, José

No 15499, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a tractable general equilibrium framework in which firms are large and have market power with respect to both products and labor, and in which a firm’s decisions are affected by its ownership structure. We characterize the Cournot–Walras equilibrium of an economy where each firm maximizes a share-weighted average of shareholder utilities—rendering the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing then an increase in “effective†market concentration (which accounts for common ownership) leads to declines in employment, real wages, and the labor share. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership could stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We characterize for which ownership structures the monopolistically competitive limit or an oligopolistic one are attained as the number of sectors in the economy increases. When firms have heterogeneous constant returns to scale technologies we find that an increase in common ownership leads to markets that are more concentrated.

Keywords: Common ownership; Portfolio diversification; Macro economy; Corporate governance; Labor share; market power; Oligopsony; Antitrust policy (search for similar items in EconPapers)
JEL-codes: D43 D51 E11 L21 L41 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-com, nep-cwa and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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