Monopoly Power and Endogenous Product Variety: Distortions and Remedies

Détails

ID Serval
serval:BIB_789D90209BB8
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Titre
Monopoly Power and Endogenous Product Variety: Distortions and Remedies
Périodique
American Economic Journal: Macroeconomics
Auteur⸱e⸱s
Bilbiie F. O. , Ghironi F., Melitz M. J.
Statut éditorial
In Press
Peer-reviewed
Oui
Langue
anglais
Résumé
We study the efficiency properties of a dynamic, stochastic, general equilibrium, macroeconomic modelwith monopolistic competition and firm entry subject to sunk costs, a time-to-build lag, and exogenousrisk of firm destruction. Under inelastic labor supply and linearity of production in labor, the marketeconomy is efficient if and only if symmetric, homothetic preferences are of the C.E.S. form studiedby Dixit and Stiglitz (1977). Otherwise, efficiency is restored by properly designed sales, entry, orasset trade subsidies (or taxes) that induce markup synchronization across time and states, and alignthe consumer surplus and profit destruction effects of firm entry. When labor supply is elastic, heterogeneityin markups across consumption and leisure introduces an additional distortion. Efficiency is then restoredby subsidizing labor at a rate equal to the markup in the market for goods. Our results highlight theimportance of preserving the optimal amount of monopoly profits in economies in which firm entryis costly. Inducing marginal cost pricing restores efficiency only when the required sales subsidiesare financed with the optimal split of lump-sum taxation between households and firms.
Mots-clé
efficiency, Entry, Monopoly power, Optimal fiscal policy, Product creation, Variety, Welfare costs
Création de la notice
06/11/2018 13:15
Dernière modification de la notice
20/08/2019 14:35
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