The “Matthew Effect” and market concentration: search complementarities and monopsony power
Fernandez-Villaverde, J. and Mandelman, F. and Yu, Y. and Zanetti, F. (2021) The “Matthew Effect” and market concentration: search complementarities and monopsony power. Working Paper. Birkbeck Centre for Applied Macroeconomics, London, UK.
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Abstract
This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing highproductivity firms’ output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BCAM Working Paper #2103. ISSN: 1745-8587 |
| Keyword(s) / Subject(s): | Market concentration, superstar firms, search complementarities, monopsony power in the labor market. |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Isobel Edwards |
| Date Deposited: | 29 Mar 2021 15:35 |
| Last Modified: | 02 Aug 2023 18:07 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/43092 |
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