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Market power: a complex reality

Author(s): Peter Praet

Date published: Mar 2019

SUERF Policy Note, Issue No 62
by Peter Praet, Member of the Executive Board, European Central Bank

 

JEL-codes: E2; D4; L1.
Keywords: Markups, market power, euro area.

A number of studies have recently documented a trend rise in firm market power in the United States. This note reviews the evidence for the euro area and finds that the market power of firms located in the euro area has remained broadly unchanged in recent years. At the same time, the euro area may be facing increasing competition from large global firms. In an increasingly digitised economy characterised by high fixed costs but near zero marginal costs, one could expect rising concentration ratios and markups. Such changes in the market structures across industries can incentivise innovation, but present challenges to maintaining competitive conditions. The reasons underlying the diverging pattern between the US and the EA ought to be further analysed to draw policy conclusions. Market power can be good for growth, provided that it spurs investment and innovation. It worsens welfare if it reflects increasing rents amid lack of competition.

 

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SUERF Policy Note, Issue No 62SUERF Policy Note, Issue No 62

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