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Market power, technical progress and financial fragility

Author

Listed:
  • Delli Gatti, Domenico
  • Gallegati, Mauro
  • Palestrini, Antonio
  • Tedeschi, Gabriele
  • Vidal-Tomás, David

Abstract

We explore the nexus of market power, innovation and financial fragility by means of a macroeconomic agent based model whose core is the Dixit-Greenwald-Stiglitz (DGS) theory of firm behaviour, which nests the Greenwald-Stiglitz characterization of the firm as a borrower that runs the risk of bankruptcy in the Dixit-Stiglitz monopolistic competition setting. The optimal firm's size is increasing with net worth and productivity. Net worth increases with profits while productivity increases through R&D and innovation. Simulations show that in the presence of market power firms are more innovative and financially robust and less prone to bankruptcy. These features have not surfaced so far in standard characterizations of monopolistic competition.

Suggested Citation

  • Delli Gatti, Domenico & Gallegati, Mauro & Palestrini, Antonio & Tedeschi, Gabriele & Vidal-Tomás, David, 2024. "Market power, technical progress and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 435-452.
    • Handle: RePEc:eee:jeborg:v:217:y:2024:i:c:p:435-452
    DOI: 10.1016/j.jebo.2023.10.037
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    More about this item

    Keywords

    Market power; Net worth; Productivity; Debt relief;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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