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14:00 | Room 402 | Macro Research Seminar
Einaudi Institute for Economics and Finance, Italy
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Meeting number: 2743 247 1336
Meeting password: 826314
Authors: Jeremy Pearce, Liangjie Wu
Abstract: How does market concentration affect aggregate productivity? We study this by incorporating the role of demand in a dynamic model of granular firms that expand demand through marketing. Firms market due to high productivity or accumulated size from the past; this second force generates path dependency and persistent misallocation. Calibrating the model to firm-level price and sales data, we find that demand drives the majority of firm size growth, and there is a sizable mismatch with productivity. Endogenous marketing significantly slows down the catching up of aggregate productivity to firm-level productivity, exacerbating concentration and misallocation. Standard policies that aim to correct static markup distortions can exacerbate the dynamic misallocation between demand and productivity.
Key Words: Firm Dynamics, Productivity, Demand, Customer Capital, Market Concentration, Competition, Innovation.
JEL Code: O31, O32, O34, O41, D22, D43, L11, L13, L22
Full Text: Market Concentration and Aggregate Productivity: The Role of Demand
