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Market power and innovation in the intangible economy

De Ridder, Maarten (2024) Market power and innovation in the intangible economy. American Economic Review, 114 (1). 199 - 251. ISSN 0002-8282

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Identification Number: 10.1257/aer.20201079

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.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/aer
Additional Information: © 2024 American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D2 - Production and Organizations > D20 - General
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output (Income) Convergence
Date Deposited: 27 Sep 2023 09:42
Last Modified: 24 Jul 2024 19:57
URI: http://eprints.lse.ac.uk/id/eprint/120285

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