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Foundations of market power in monetary economies

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  • Choi, Michael
  • Rocheteau, Guillaume

Abstract

We study the foundations of firms' market power in a continuous-time model where agents are price-makers who interact explicitly with each other. Market power arises from the existence of rents, the size of which depends on consumers' outside options, and firms' ability to appropriate these rents through rent seeking. We study how measures of market power (e.g., markups, concentration) are affected by search frictions, monetary policy, and self-fulfilling beliefs. An increase in the nominal interest rate affects market power by changing consumers' payment capacity and the value of their outside options, and by altering firms' rent-seeking behavior.

Suggested Citation

  • Choi, Michael & Rocheteau, Guillaume, 2024. "Foundations of market power in monetary economies," Journal of Economic Theory, Elsevier, vol. 222(C).
    • Handle: RePEc:eee:jetheo:v:222:y:2024:i:c:s0022053124001376
    DOI: 10.1016/j.jet.2024.105931
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    More about this item

    Keywords

    Search; Bargaining; Market power; Rent seeking; Money;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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