Market Power and Innovation in the Intangible Economy

Department of Economics and Decision Sciences
Speaker : Maarten de Ridder (LSE)
Room T-010

Abstract :

This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. The increasing use of intangible inputs – such as software – explains these trends because it causes a shift from variable costs towards fixed costs, which changes the way that firms produce and compete. I develop a quantitative framework with heterogeneous firms and endogenous productivity growth in which intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage. This advantage deters other firms from entering new markets and lowers the overall rate of creative destruction