Quantifying Market Power and Business Dynamism in the Macroeconomy

Jan De Loecker, Jan Eeckhout and Simon Mongey

No 28761, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a general equilibrium economy with oligopolistic output markets in which two channels can cause a change in market power: (i) technology, via changes to productivity shocks and the cost of entry, (ii) market structure, via changes to the number of potential competitors. First, we disentangle these narratives by matching time-series on markups, labor reallocation and costs between 1980 and 2016, finding that both channels are necessary to account for the data. Second, we show that changes in technology and market structure over this period yielded positive welfare effects from reallocation and selection, but off-setting negative effects from deadweight loss and overhead. Overall, welfare is 9 percent lower in 2016 than in 1980. Third, the changes we identify replicate cross-sectional patterns in declining business dynamism, declining equilibrium wages and labor force participation, and sales reallocation toward larger, more productive firms.

JEL-codes: E0 L1 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-com, nep-dge, nep-lma and nep-mac
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Related works:
Working Paper: Quantifying Market Power and Business Dynamism in the Macroeconomy (2021)
Working Paper: QUANTIFYING MARKET POWER AND BUSINESS DYNAMISM IN THE MACROECONOMY (2021)
Working Paper: Quantifying market power and business dynamism in the macroeconomy (2021)
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