Quantifying Market Power and Business Dynamism in the Macroeconomy / Jan De Loecker, Jan Eeckhout, Simon Mongey.

Format:

Book

Author/Creator:

De Loecker, Jan.

Contributor:

National Bureau of Economic Research.

Eeckhout, Jan.

Mongey, Simon.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28761.

NBER working paper series no. w28761

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

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.

Notes:

Print version record

May 2021.