Market Power and Innovation in the Intangible Economy
American Economic Review
vol. 114,
no. 1, January 2024
(pp. 199-251)
Abstract
This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism, and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs, such as software, can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and US micro data. After initially boosting productivity, the rise of intangibles causes a decline in productivity growth, consistent with the empirical trends observed since the mid-1990s.Citation
De Ridder, Maarten. 2024. "Market Power and Innovation in the Intangible Economy." American Economic Review, 114 (1): 199-251. DOI: 10.1257/aer.20201079Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E23 Macroeconomics: Production
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- O31 Innovation and Invention: Processes and Incentives
- O47 Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence