General Equilibrium Oligopoly and Ownership Structure

56 Pages Posted: 31 Dec 2019 Last revised: 15 May 2020

See all articles by José Azar

José Azar

University of Navarra, IESE Business School; CEPR

Xavier Vives

University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: May 11, 2020

Abstract

We develop a tractable general equilibrium framework in which firms are large and have market power, with respect to both products and labor, and in which a firm's decisions are affected by its ownership structure. We characterize the Cournot--Walras equilibrium of an economy where each firm maximizes a share-weighted average of shareholder utilities---rendering the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing then an increase in ``effective'' market concentration (which accounts for common ownership) leads to declines in employment, real wages, and the labor share. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership could stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We characterize for which ownership structures the monopolistically competitive limit or an oligopolistic one are attained as the number of sectors in the economy increases. When firms have heterogeneous constant returns to scale technologies we find that an increase in common ownership leads to markets that are more concentrated.

Keywords: common ownership, portfolio diversification, macroeconomy, corporate governance, labor share, market power, oligopsony, antitrust policy

JEL Classification: D51, D43, E11, L21, L41

Suggested Citation

Azar, José and Vives, Xavier, General Equilibrium Oligopoly and Ownership Structure (May 11, 2020). Available at SSRN: https://ssrn.com/abstract=3501611 or http://dx.doi.org/10.2139/ssrn.3501611

José Azar

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

CEPR ( email )

London
United Kingdom

HOME PAGE: http://https://sites.google.com/site/joseazar/

Xavier Vives (Contact Author)

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Universitat Pompeu Fabra (UPF) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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