General equilibrium, welfare and policy when firms have market power

We consider a market economy in which consumption goods are produced using high- and low-skilled labor. When rms have market power, the economy's surplus, aggregate income, employment, wages, and labor share are smaller than those under perfect competition. A low binding minimum wage alleviates the ineficiency and distributional bias caused by market power, without creating unemployment. Revenues from non-distortionary corporate taxes may be used to fund distributional policies (e.g., unemployment subsidies) and/or public spending enhancing production possibilities (e.g., education/innovation programs).Free entry leads to eficient entry under perfect competition but may lead to either excessive or insuficient entry when rms have market power.