The “Matthew Effect” and Market Concentration: Search Complementarities and Monopsony Power

Jesus Fernandez-Villaverde, Federico Mandelman, Yang Yu and Francesco Zanetti

No 28495, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms' output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality.

JEL-codes: C63 C68 E32 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cta, nep-dge, nep-lab and nep-mac
Note: EFG
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Published as Fernández-Villaverde, Jesús & Mandelman, Federico & Yu, Yang & Zanetti, Francesco, 2021. "The “Matthew effect” and market concentration: Search complementarities and monopsony power," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 62-90.

Downloads: (external link)
http://www.nber.org/papers/w28495.pdf (application/pdf)

Related works:
Journal Article: The “Matthew effect” and market concentration: Search complementarities and monopsony power (2021)
Working Paper: The "Matthew Effect" and Market Concentration: Search Complementarities and Monopsony Power (2021)
Working Paper: The "Matthew Effect" and Market Concentration: Search Complementarities and Monopsony Power (2021)
Working Paper: The “Matthew Effect” and Market Concentration: Search Complementarities and Monopsony Power (2021)
Working Paper: The ``Matthew Effect'' and Market Concentration: Search Complementarities and Monopsony Power (2021)
Working Paper: The “Matthew effect” and market concentration: Search complementarities and monopsony power (2021)
Working Paper: The "Matthew Effect" and Market Concentration: Search Complementarities and Monopsony Power (2021)
Working Paper: The “Matthew Effect” and Market Concentration:Search Complementarities and Monopsony Power (2021)
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:nbr:nberwo:28495

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28495

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().