The impact of market concentration and economies of scale on production networks: a new nonlinear input–output framework

The traditional Leontief input–output model analyzes an economy’s productive structure under the assumption of perfect competition. However, this limits its ability to capture the impact of market concentration and economies of scale in production networks. This article proposes a new methodological framework that explicitly incorporates these elements via a nonlinear reformulation of the model. The strategy has two stages: first, a theoretical reformulation that incorporates concentration and scale indicators, and second, econometric estimation of those parameters. The methodology is applied to Mexico using the most recent available input–output table. The results suggest that concentrated industries significantly influence intersectoral relationships. This proposed method opens a new line of research with promising potential for investigating how market concentration shapes the demand for intermediate inputs and influences economic development.