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On the General Equilibrium Effects of Market Power

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  • Moreno, Diego
  • Petrakis, Emmanuel

Abstract

In an economy in which firms exercise market power in the markets for consumption goods and inputs (labor), we show that a merger to monopoly is Pareto improving when the number of firms is below a threshold. This threshold is larger the larger is the elasticity of labor supply and the smaller is the consumers'preference for goods variety. Consequently, market concentration may have non-monotonic general equilibrium effects on wage mark downs, employment and welfare.

Suggested Citation

  • Moreno, Diego & Petrakis, Emmanuel, 2022. "On the General Equilibrium Effects of Market Power," UC3M Working papers. Economics 35529, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:35529
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    References listed on IDEAS

    as
    1. José Azar & Xavier Vives, 2021. "General Equilibrium Oligopoly and Ownership Structure," Econometrica, Econometric Society, vol. 89(3), pages 999-1048, May.
    2. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 561-644.
    3. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
    4. José Azar & Xavier Vives, 2021. "Reply to: Comments on “General Equilibrium Oligopoly and Ownership Structure”," Econometrica, Econometric Society, vol. 89(3), pages 1061-1063, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D6 - Microeconomics - - Welfare Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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