Macro Seminar Speaker: Alessandra Peter, NYU
Presentation Title: IneQuality
Abstract:
This paper studies the distributional effects of market power when firms endogenously choose their product portfolios. We develop a general equilibrium model with heterogeneous oligopolistic firms that choose the quality of their products and compete both across firms and within their own product lines. High-market-power firms distort their lower-end products to avoid cannibalizing sales of high-end ones. Such cannibalization concerns do not affect the product choices of low-market-power firms. We show that a rise in market power disproportionally hurts low-income households, both by reducing the quality of products they consume and raising their unit prices. Through general equilibrium forces, high-income households may benefit from lower competition. Using a quantitative multi-sector model, we find that the rise in concentration over the past forty years has reduced the welfare of low-income households by 4.9% and increased that of high-income households by 2%.
Host: Heitor Pellegrina