Description: Department Seminar: Corina Boar (NYU)
Location: 368A Heady Hall
Contact Person: Juan Carlos Cordoba
Title: "Markups and Inequality"
Abstract: We characterize optimal product market policy in an unequal economy in which firm ownership is concentrated and markups increase with firrm market shares. We study the problem of a utilitarian regulator who designs revenue-neutral interventions in the product market. We show that optimal policy increases product market concentration. This is because policies that encourage larger producers to expand improve allocative efficiency, increase the labor share and the equilibrium wage. We derive these results both in a static Mirrleesian setting in which we impose no constraints on the shape of interventions, as well as in a dynamic economy with capital and wealth accumulation. In our dynamic economy optimal policy reduces wealth and income inequality by redistributing market share and profits from medium-sized businesses, which are primarily owned by relatively rich entrepreneurs, to larger diversifed corporate firms.