Competition and Inequality

Mechelli, Rajssa; Colciago, Andrea

doi:10.2139/ssrn.3652023

Cited by 4 publications

(4 citation statements)

References 51 publications

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“…An increase in fixed costs is proposed as a potential reason behind the surge in markups and market power. According to Colciago and Mechelli (2020), several recent phenomena, such as the increase in markups, the decline in labor share, and the reduction in start-up rates, can be explained by a rise in entry barriers. Ridder (2020) states that the cost composition of companies is changing from 4 While the expression for markups would be different under price competition, the inverse relationship between N and μ would be preserved.…”

Section: Productionmentioning

confidence: 99%

Monopolistic competition, rising markups, and optimal taxation of participation

Gürer

2023

J Public Economic Theory

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This study explores the optimal taxation of participation within a monopolistically competitive product market that exhibits increasing markups. Individual labor supply responds along both intensive and extensive margins. The government simultaneously optimizes a nonlinear Mirrleesian income tax scheme, a flat profit tax rate, and a flat unemployment benefit. It is shown analytically that the monetized welfare cost of an increase in unemployment benefit is higher under monopolistic competition compared to under perfect competition. Nevertheless, numerical simulations suggest that the optimal unemployment benefit increases in response to greater markups when the government simultaneously optimizes all of its tools. The reason is that, along with a higher profit tax, rising markups require a decline in marginal income taxes. Lower marginal income taxes relieve the extensive margin distortions and accommodate an increase in the unemployment benefit. Accordingly, optimal nominal participation taxes remain approximately unchanged for the lower half of the ability distribution. For the upper half, the decline in income taxes outweighs the increase in the unemployment benefit, leading to lower optimal nominal participation taxes.

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Section: Productionmentioning

confidence: 99%

Monopolistic competition, rising markups, and optimal taxation of participation

Gürer

2023

J Public Economic Theory

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“…At the same time, the latter strand of economics was seldom, if at all, interested in issues of inequality (see, for example, Motta 2009). Only recently, one finds attempts to investigate barriers to entry into markets and their distributional consequences (see Colciago, Mechelli 2020), the possible links between the struggle for market shares and inequality (Hefti, Teichgräber 2021) or the impact of import competition on income quantiles of households (Helble et al 2018).…”

Section: Introductionmentioning

confidence: 99%

Correcting inequality of personal incomes before income taxes and transfers: theoretical underpinnings and competition policy options

Sell

2021

CEREM

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Aim: The purpose of this paper is to bring together theory and policy of (personal) income distribution on the one hand and competition policy on the other hand. Design / research: The methods used in this paper cover a brief model set-up, followed by a numerical model-calibration. Thereafter, we present a model simulation and proceed to a Gini decomposition. Herewith, we are able to demonstrate how market imperfections translate into a higher concentration of personal incomes. Conclusions / findings: Our major finding is that only a rigorous competition policy is qualified to not only correct for market imperfections, but also to fight a greater inequality of personal incomes ex-ante. Originality / value of the article: This contribution provides – to our knowledge for the first time – a simultaneous explanation for stagnating, if not falling real wages and a deteriorating development of inequality of personal incomes, as measured by the Gini coefficient ex-ante. The US economy is a case study for this double observation, but many more developed economies may follow in the foreseeable future. Limitations of the research: The implication of the research is that long before government intervenes income distribution via taxes and transfers, competition policy should correct for market imperfections and thereby reduce the inequality of personal incomes. Unfortunately, to this point, we observe a lack of meaningful macroeconomic indicators for market imperfections and hence the possibility to conduct broad econometric studies in this area of investigation.

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“…An alternative reasoning for increasing markups is the reallocation of economic activity towards the most productive organizations, i.e., superstar firms(Autor et al 2020). As noted inColciago and Mechelli (2020), the two explanations can be true for different industries (or countries) at the same time. Departing from the empirical evidence on increasing fixed costs, this study focuses on the market power explanation of rising markups.…”

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confidence: 99%

“…Recent empirical evidence reports a slowdown in business dynamism (Decker et al 2016;Pugsley and Sahin 2018) and an increase in markups (Loecker et al 2020;Hall 2018) in the USA. Rising fixed costs can explain these stylized facts by imposing barriers for market entry and, hence, hampering competitiveness (Colciago and Mechelli 2020;Ridder 2020). Various arguments for the underlying causes of rising fixed costs include technological change (Acemoglu et al 2020;Ridder 2020;Grullon et al 2019;Bessen 2017), demographic change (Karahan et al 2019;Hopenhayn et al 2018), a slow-down in research productivity (Bloom et al 2020) and increasing regulations (Gutiérrez and Philippon 2019).…”

mentioning

confidence: 99%

Rising Markups and Optimal Redistributive Taxation

Gürer

2021

SSRN Journal

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Competition and Inequality

Cited by 4 publications

References 51 publications

Monopolistic competition, rising markups, and optimal taxation of participation

Monopolistic competition, rising markups, and optimal taxation of participation

Correcting inequality of personal incomes before income taxes and transfers: theoretical underpinnings and competition policy options

Rising Markups and Optimal Redistributive Taxation

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