Oligopoly, Macroeconomic Performance, and Competition Policy

59 Pages Posted: 26 Jun 2018 Last revised: 4 Jan 2019

See all articles by Jose Azar

Jose Azar

Princeton University - Department of Economics

Xavier Vives

University of Navarra - IESE Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: June 2018

Abstract

We develop a macroeconomic framework in which firms are large and have market power with respect to both products and labor. Each firm maximizes a share-weighted average of shareholder utilities, which makes the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing, then an increase in "effective" market concentration (which accounts for overlapping ownership) leads to declines in employment, real wages, and the labor share. Moreover, if the goal is to foster employment then (i) controlling common ownership and reducing concentration are complements and (ii) government jobs are a substitute for either policy. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership can stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We characterize for which ownership structures the monopolistically competitive limit or an oligopolistic one (where firms become small relative to the economy) are attained as the number of sectors in the economy increases. Finally, we provide a calibration to illustrate our results.

Keywords: Antitrust Policy, Labor Share, market power, oligopsony, ownership, portfolio diversification

JEL Classification: D63, E60, G11, L13, L21, L41

Suggested Citation

Azar, Jose and Vives, Xavier, Oligopoly, Macroeconomic Performance, and Competition Policy (June 2018). CEPR Discussion Paper No. DP13000, Available at SSRN: https://ssrn.com/abstract=3202272

Jose Azar (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~jazar/

Xavier Vives

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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