Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, December 13, 2019

Markups and Inequality

By: Corina BoarVirgiliu Midrigan
Abstract: We study the aggregate and distributional impact of product market interventions and profit taxes using a model of firm dynamics, credit constraints and incomplete markets. A key ingredient of our model is that markups are endogenous so that the markup a producer charges depends on the amount of competition it faces. We show that size-dependent subsidies that remove the distortions due to markup dispersion lead to sizable welfare gains and reduce inequality, even though they increase firm concentration and long-run misallocation. In contrast, policies that reduce concentration lead to large output, TFP and welfare losses and increase inequality. A tax on profits greatly depresses the incentives to create new firms, reducing labor demand, after-tax wages and welfare.
URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:25952&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2019/12/markups-and-inequality.html

| Permalink

Comments

Post a comment