nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒11‒25
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Product Differentiation, Oligopoly, and Resource Allocation By Bruno Pellegrino
  2. Market power and welfare loss By Merino Troncoso, Carlos

  1. By: Bruno Pellegrino
    Abstract: Industry concentration and profit rates have increased significantly in the United States over the past two decades. There is growing concern that oligopolies are coming to dominate the American economy. I investigate the welfare implications of the consolidation in U.S. industries, introducing a general equilibrium model with oligopolistic competition, differentiated products, and hedonic demand. I take the model to the data for every year between 1997 and 2017, using a data set of bilateral measures of product similarity that covers all publicly traded firms in the United States. The model yields a new metric of concentrationâbased on network centralityâthat varies by firm. This measure strongly predicts markups, even after narrow industry controls are applied. I estimate that oligopolistic behavior causes a deadweight loss of about 13% of the surplus produced by publicly traded corporations. This loss has increased by over one-third since 1997, as has the share of surplus that accrues to producers. I also show that these trends can be accounted for by the secular decline of IPOs and the dramatic rise in the number of takeovers of venture-capital-backed startups. My findings provide empirical support for the hypothesis that increased consolidation in U.S. industries, particularly in innovative sectors, has resulted in sizable welfare losses to the consumer.
    JEL: D2 D4 D6 E2 L1 O4
    Date: 2019–11–04
    URL: http://d.repec.org/n?u=RePEc:jmp:jm2019:ppe860&r=all
  2. By: Merino Troncoso, Carlos
    Abstract: I estimate welfare loss of market power using consumer loss variation. I estimate demand elasticity of certain goods known to suffer monopolistic power. Based in Urzúa's study I employ data from household expenditure survey of Spain and Deaton ́s methodology to estimate elasticities of demand using expenditure of households. We finally obtain distributive effects of market power in selected sectors.
    Keywords: welfare loss, inequality, demand elasticity
    JEL: D63 L4
    Date: 2019–11–10
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:96902&r=all

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