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José Azar, IESE Business School
General Equilibrium Oligopoly and Ownership Structure
Abstract:
We develop a tractable general equilibrium framework in which firms are large and have market power, with respect to both products and labor, and in which a firm’s decisions are affected by its ownership structure. We characterize the Cournot–Walras equilibrium of an economy where each firm maximizes a share-weighted average of shareholder utilities—rendering 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 common ownership) leads to de-clines in employment, real wages, and the labor share. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership could stimulate the econ-omy 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 are attained as the number of sectors in the economy increases. When firms have heterogeneous constant returns to scale technologies we find that an increase in common ownership leads to markets that are more concentrated
(joint with Xavier Vives)

Oct 20, 2020 02:00 PM in Brussels

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