Market Power and Efficiency in a Search Model

Manolis Galenianos, Philipp Kircher and Gábor Virág ()

MPRA Paper from University Library of Munich, Germany

Abstract: We build a theoretical model to study the welfare effects and resulting policy implications of firms’ market power in a frictional labor market. Our environment has two main characteristics: wages play a role in allocating labor across firms and there is a finite number of agents. We find that the decentralized equilibrium is inefficient and that the firms’ market power results in the misallocation of workers from the high to the low-productivity firms. A minimum wage forces the low-productivity firms to increase their wage, leading them to hire even more often thereby exacerbating the inefficiencies. Moderate unemployment benefits can increase welfare because they limit firms’ market power by improving the workers’ outside option.

Keywords: directed search; heterogeneity; inefficient allocation; market power (search for similar items in EconPapers)
JEL-codes: D43 J08 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: MARKET POWER AND EFFICIENCY IN A SEARCH MODEL (2011)
Working Paper: Market power and efficiency in a search model (2011)
Working Paper: Market Power and Efficiency in a Search Model (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:17093

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