Rafael Guthmann, UAH

Paper: Market Power, Inequality, and Growth

Abstract: This paper develops an endogenous growth model that links demographics, business dynamism, market power, productivity growth, and income inequality. Firms compete in oligopolistic markets where rivalry drives markups, innovation, and knowledge spillovers. The model features an endogenous distribution of income that depends on firm creation and ownership. As firm creation crucially depends on demographics, we explain the effects of the demographic channel on market power, productivity growth, and inequality. Calibrating the model to U.S. data (1963–2023) suggests that ca. 80% of the slowdown in productivity growth and the decline of the labor share, ca. 25% of the rise in market power, and ca. 35% of the rise in inequality over these six decades can be explained simply by the reduction in the rate of growth of the working-age population. This reduced demographic growth reduces competition intensity and business dynamism as there are fewer potential entrepreneurs to create firms, slowing productivity growth and concentrating income across households.