IDEAS home Printed from https://ideas.repec.org/p/ssb/dispap/502.html
   My bibliography  Save this paper

The Welfare Cost of Market Power. Accounting for Intermediate Good Firms

Author

Listed:

Abstract

The market power of firms in intermediate good markets is found to generate a substantial welfare cost. Markup pricing of intermediate good firms contributes to increase the wedge between the marginal product of labor and the wage rate received by workers, as intermediate good firms add additional markups to the unit cost of a consumer good. This creates an additional wedge in the labor market, and is costly due to the existing substantial tax wedge in the labor market. The welfare cost of distortions in the supply of labor created by market power of firms is found to be more than 40 times larger than the welfare cost of distortions in the allocation of consumer goods created by differences in market power of firms. This welfare cost is substantial compared to previous estimates.

Suggested Citation

  • Geir H. Bjertnæs, 2007. "The Welfare Cost of Market Power. Accounting for Intermediate Good Firms," Discussion Papers 502, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:502
    as

    Download full text from publisher

    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp502.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Monopoly; Taxation; Welfare costs;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:502. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (L Maasø). General contact details of provider: http://edirc.repec.org/data/ssbgvno.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.