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Imperfect competition in product and labour markets. A quantitative analysis

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  • Dario Tortarolo
  • Roman D. Zarate

Abstract

We disentangle the extent of imperfect competition in product and labor markets using plant level data. We derive a formula for the ratio between markups and markdowns assuming costminimizing firms that face upward-sloping labour supply and downward-sloping product demand curves. We then separate this combined measure of market power by estimating firm-level labour supply elasticities instrumenting wages with a different set of instruments: including the use of intermediate inputs, input price shocks, and TFP shocks. Our results suggest that both markets exhibit imperfect competition, but the variation is mainly driven by markups. We also estimate the relative gains of removing market power dispersion on allocative efficiency, finding that markups are more important on TFP than markdowns.

Suggested Citation

  • Dario Tortarolo & Roman D. Zarate, 2020. "Imperfect competition in product and labour markets. A quantitative analysis," Discussion Papers 2020-05, Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP).
    • Handle: RePEc:not:notnic:2020-05
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    File URL: https://www.nottingham.ac.uk/research/groups/nicep/documents/working-papers/2020/nicep-2020-05.pdf
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    Cited by:

    1. Francesco Amodio & Nicolás de Roux, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," Documentos CEDE 19267, Universidad de los Andes, Facultad de Economía, CEDE.
    2. Thomas Ziesemer, 2023. "Labour-augmenting technical change data for alternative elasticities of substitution: growth, slowdown, and distribution dynamics," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 32(4), pages 449-475, May.
    3. Amodio, Francesco & Medina, Pamela & Morlacco, Monica, 2022. "Labor Market Power, Self-Employment, and Development," CEPR Discussion Papers 17543, C.E.P.R. Discussion Papers.
    4. Mertens, Matthias & Mottironi, Bernardo, 2023. "Do larger firms exert more market power? Markups and markdowns along the size distribution," LSE Research Online Documents on Economics 121283, London School of Economics and Political Science, LSE Library.

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    Keywords

    labour markets; imperfect competition; markups; TFP shocks;
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