Events of Department of Economics
May 23, 2019 at 12:30
Seminar Room 5.e4.sr04 - Via Roentgen 1
Quantifying Market Power
Jan Eeckhout (UPF)
Jan Eeckhout (UPF) Abstract
We quantify the rise in market power in the aggregate economy and investigate the causes and the consequences. We propose a general equilibrium model with oligopolistic output markets and a competitive labor market, where firm productivity is stochastic, entry is costly and firm size and markups adjust endogenously. Technological change (the variance of productivity shocks and the cost of entry) as well as the market structure (the number of potential entrants) cause a change in the markup distribution especially at the upper percentiles. The model can explain recent secular trends as a consequence of the rise of market power: a decline in labor market dynamism, declining equilibrium wages and labor force participation, and a rise in profitability of large firms. In the calibrated economy, both technological change and a change in market structure are necessary to explain the observed change in markups between 1980 and 2016. We find that 2016 welfare would be 19% higher with 1980 market power.