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 simple private goods market economy and show that when firms have market power the equilibrium real wage, employment, real output, and labor share are less than under perfect competition. Contrary to common wisdom market concentration may have non-monotonic general equilibrium effects: the equilibrium allocation of a monopolistic economy may Pareto dominate that of an oligopolistic economy. Corporate taxes provide an appropriate instrument to pursue distributional objectives since, unlike taxes on labor income, they do not create additional deadweight losses. An appropriate minimum real wage improves efficiency and increases the labor share in a monopolistic economy, whereas in an oligopolistic economy its efficiency effects are uncertain due the existence of multiple equilibria.

Keywords: General; Equilibrium; Market; Power; Oligopoly; Monopoly; Minimum; Wage; Policy; Income; Distribution (search for similar items in EconPapers)
JEL-codes: D4 D5 D6 L1 L4 (search for similar items in EconPapers)
Date: 2024-01-25
New Economics Papers: this item is included in nep-com and nep-ind
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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:39547

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