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Quantifying Market Power and Business Dynamism in the Macroeconomy
What are the causes and consequences of changes in market power and business dynamism in the U.S. economy? We answer these questions in a general equilibrium economy with firm heterogeneity, oligopolistic output markets and endogenous entry. We study three potential causes: technology via (i) the firm productivity distribution and (ii) the composition of overhead versus variable costs, and competition via (iii) the number of potential competitors. We show that in conjunction with time-series on markups and costs, data on business dynamism disentangles these channels. We then estimate that all ...