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Persistence of Market Power: The Limits of Firm Dynamics and Competition in Finland

Author

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  • Markkanen, Jaakko

Abstract

Average markups of Finnish firms remain stable, but this stability conceals a substantial structural shift: low-markup firms have lost market share to high-markup firms. The pattern admits two possible readings. Under a good state of nature, more productive firms grow at the expense of weaker ones, improving resource allocation; under another, strong incumbents dominate the markets, and competition does not push their markups down. The data cannot separate the two readings, but both carry clear policy implications. Two further findings tighten the picture: firm position in the markup distribution is persistent, especially at the top, and new entry does not compress industry-level markups. The textbook prediction that free entry erodes high markups is not borne out in the Finnish data.

Suggested Citation

  • Markkanen, Jaakko, . "Persistence of Market Power: The Limits of Firm Dynamics and Competition in Finland," ETLA A, The Research Institute of the Finnish Economy, number 179, December.
    • Handle: RePEc:rif:abooks:179
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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