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Jocelyn BROUSSARD (CREST) – "Concentration and markups beyond monopolistic competition"

November 13, 2017 @ 12:15 pm - 1:30 pm
The Macroeconomics Seminar: Every Monday at 12:15 pm.
Time: 12:15 pm – 1:30 pm
Date: 13th of November 2017
Place: Room 3001.
Jocelyn BROUSSARD (CREST) – “Concentration and markups beyond monopolistic competition”


Several recent paper (Barkai 2017, Autor et al. 2017, De Loecker & Eeckhout 2017) have reported a rise in both concentration and markup in the US since the 1990s. This rise has been pointed to as the source behind several macroeconomic trends: low investment rates, decrease in labor shares, decrease in low-skilled wages, output slowdown. We first show that in monopolistic competition, an increase in markups leads to a decrease in concentration, as higher market power mainly benefits unproductive and small firms. This motivates our thinking that in order to understand how concentration affects aggregate variables, one needs to distance itself from monopolistic competition and take into account strategic interactions. We develop a tractable model where firms with non-zero mass coexist with zero-mass firms, and map the evolution of both markups and concentration to variations in product differentiability. We show that the concentration increasing effect of product differentiability is dampened because strategic firms have higher prices and lower market shares than in monopolistic competition. Moreover, the effect of product differentiability on markups depends on a crucial parameter, the degree of productivity heterogeneity between non-strategic and strategic firms: in sectors with high heterogeneity, an increase in differentiability leads to an increase in concentration and average markups despite a decrease in small firms markups. In sectors with low heterogeneity or with unproductive big firms, an increase in differentiability will reduce both concentration and average markups.

Joint work : Raphaël LEE  (CREST)

Organizers: Julien PRAT (CREST )

Sponsors: CREST
Address : ENSAE ParisTech  5, avenue Henry Le Chatelier 91120 Palaiseau, How to come?