Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185387
Authors: 
Azar, José
Vives, Xavier
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7189
Abstract: 
We develop a macroeconomic framework in which firms are large and have market power with respect to both products and labor. Each firm maximizes a share-weighted average of shareholder utilities, which makes 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 overlapping ownership) leads to declines in employment, real wages, and the labor share. Moreover, if the goal is to foster employment then (i) controlling common ownership and reducing concentration are complements and (ii) government jobs are a substitute for either policy. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership can stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We find that neither the monopolistically competitive limit of Dixit and Stiglitz nor the oligopolistic one of Neary (when firms become small relative to the economy) are attained unless there is incomplete portfolio diversification with no intra-industry common ownership.
Subjects: 
ownership
portfolio diversification
labor share
market power
oligopsony
antitrust policy
JEL: 
L13
L21
L41
G11
E60
D63
Document Type: 
Working Paper

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