CORDIS - EU research results
CORDIS

Market Power and Secular Macroeconomic Trends

Project description

Keeping market power under control

Some companies can successfully and very profitably raise the market price of their products or services without losing any customers to competitors. In economics, this is known as market power. The EU-funded MARKET POWER project will assess the causes and macroeconomic consequences of this phenomenon. It will investigate labour market dynamism, the decline of new startups and the stagnation of low-skilled wages in view of a recent increase in market power. The project will distinguish between the causes that inherently stem from market structure (antitrust enforcement and mergers) and those that result from technological change, such as intangible assets and network externalities. The findings will shed light on how to keep market power under control in order to remediate its macroeconomic consequences.

Objective

In the last four decades, there have been a number of significant secular trends in the advanced economies around the world. Wage inequality has risen sharply, and most of the wage gains have been appropriated by the top 1%. In addition, labor market dynamism and new startups have declined, the labor share of total output has fallen, low skilled wages have stagnated, and there has been reallocation of production from small to superstar firms. During the same four decades, there has also been a sharp secular increase in market power. Firms set higher prices, profit rates are higher, and scale economies are up.
In this proposal, I address the question whether these secular trends are related. Specifically, I ask whether the rise of market power has caused these profound macroeconomic changes. The objective is to uncover economic mechanisms that help understand this fundamental transformation and the implications for efficiency and welfare.
I propose to investigate both the causes of the rise in market power and its macroeconomic consequences. I distinguish between causes that stem inherently from the market structure (such as antitrust enforcement and Mergers & Acquisitions) and those that result from technological change (economies of scale, intangible assets, and network externalities). Methodologically, this research proposal aims to contribute to the literature on three fronts: 1. the measurement of markups, 2. to derive theoretical results linking market power and macroeconomic consequences, 3. to estimate and quantitatively evaluate these models. The close link between the macroeconomic consequences and the causes of market power renders this a research proposal at the intersection of macro/labor, industrial organization and law & economics. The objective is to inform the policy debate: how to keep market power under control in order to remediate its macroeconomic consequences that were hitherto considered independent.

Keywords

Host institution

UNIVERSIDAD POMPEU FABRA
Net EU contribution
€ 1 439 000,00
Address
PLACA DE LA MERCE, 10-12
08002 Barcelona
Spain

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Region
Este Cataluña Barcelona
Activity type
Higher or Secondary Education Establishments
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Total cost
€ 1 439 000,00

Beneficiaries (2)