Entry Costs and the Macroeconomy

Abstract

We combine a structural model with cross-sectional micro data to identify the causes andconsequences of rising concentration in the US economy. Using asset prices and industrydata, we estimate realized and anticipated shocks that drive entry and concentration. Wevalidate our approach by showing that the model-implied entry shocks correlate withindependently constructed measures of entry regulations and M&As. We conclude that entrycosts have risen in the U.S. over the past 20 years and have depressed capital andconsumption by about seven percent.

Keywords: Price indexes, Supply and demand, Business cycles, Financial crises, Consumption, Corporate Investment, Competition, Tobin's Q, Zero Lower Bound., WP, entry cost, ZLB, Herfindahl, net investment, premia

JEL Classification: E2, E40, E5, L4, E01, D4, C, C43, L16