Productivity Versus Power: The Role of Law and Technology, (Mis)perceptions and Ideology
Harvard Law School John M. Olin Center Discussion Paper No. 1057
87 Pages Posted: 1 Apr 2021
Date Written: March 31, 2021
Power and productivity mediate economic outcomes across markets–both product markets and labor markets. We develop a neoclassical economic framework that combines productivity and power, and presents the balance between them as an equilibrium outcome determined by strategic investments–by firms, consumers and workers–in law, technology, (mis)perceptions and ideology. An actor’s choice of investment–most important, the choice between a productivity-increasing investment and a power-increasing investment–can be explained by the relative marginal return from the different investments. Whereas the incentives of firms and consumers and those of firms and workers are roughly aligned with respect to productivity-increasing investments, they are diametrically opposed with respect to power-increasing investments. Since investments affect surplus and thus the resources available for future investment, the model features multiple equilibria and path dependence. Policy intervention may be needed to shift the market from a bad equilibrium, with low productivity and adverse distributive consequences, to a more efficient and more equitable equilibrium. Policy intervention may also be needed to control welfare-reducing, power-seeking investments. While some degree of market power may be needed to support long-term efficiency, innovation and economic growth, firms will often seek excessive market power that will reduce overall welfare. Policymakers should strive to optimize power structures across different markets, e.g., by influencing the relative return from different power-increasing and productivity-increasing investments. The explanatory power of our theoretical framework is demonstrated through a series of detailed case studies–from the home broadband and net neutrality wars and the antitrust battles of Microsoft and now Google to the struggles between firms and unions during 19th century industrialization and the evolving story of Uber and the gig economy. Our framework informs ongoing debates in antitrust law, labor and employment law, intellectual property law, and consumer protection law, and in any other area of law that regulates, directly or indirectly, product or labor markets.
Keywords: Power, Productivity, Technology, Misperceptions, Ideology, Products Markets, Labor Markets
JEL Classification: D21, D63, D91, J38, J58, J68, J78, K21, K31, L11, L22, O38
Suggested Citation: Suggested Citation