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 declines 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 economy 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 is 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.

Highlights

  • OLIGOPOLY is widespread and allegedly on the rise

  • We find that increased market concentration—due either to fewer firms or to more diversification—depresses the economy by reducing employment, output, real wages, and the labor share

  • We find that common ownership always has an anti-competitive effect when increasing intra-industry diversification, but that it can have a pro-competitive effect when increasing economywide diversification if the elasticity of labor supply is high in relation to the elasticity of substitution among product varieties

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Summary

INTRODUCTION

OLIGOPOLY is widespread and allegedly on the rise. Many industries are characterized by oligopolistic conditions—including, but not limited to, the digital ones dominated by GAFAM: Google ( Alphabet), Apple, Facebook, Amazon, and Microsoft. When there are multiple sectors, it is optimal for worker-consumers to have full diversification (common ownership) economy-wide but no extra diversification intra-industry—that is, when the elasticity of substitution in product markets is low relative to the elasticity of labor supply In this case, competition policy should seek to alter only intra-industry ownership structure. Appendix A provides more detail about the case of increasing returns in production, and the proofs of most results are given in Appendix B

Theory
Empirics
ONE-SECTOR ECONOMY WITH LARGE FIRMS
Model Setup
Equilibrium Concept
Characterization of Equilibrium
Cournot–Walras Equilibrium
Heterogeneous Firms
Summary and Investment Extension
MULTIPLE SECTORS
Large Economies
Case 1
Case 2
Case 3
Case 4
Calibration
COMPETITION POLICY
Social Planner’s Solution in the One-Sector Model
Competition Policy
Worker-Consumer Welfare
Positive Weight on Owner-Consumer Welfare
Competition Policy With Multiple Sectors
Findings
CONCLUSION

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