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Monopsonistic competition, trade, and the profit share

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  • Luca Macedoni

Abstract

I present a tractable international trade model of monopsonistic competition and heterogeneous firms, in which markups and markdowns are increasing with the size of firms. The model sheds new light on the effects of trade on the aggregate profit share. In a standard model with a Pareto distribution of firm characteristics, the profit share is constant; by augmenting the model with the assumption of monopsonistic competition, trade can increase the profit share under reasonable assumptions for the parameter values. Monopsonistic competition is, thus, a contributing factor to the documented decline in the labor share and rise in corporate profits.

Suggested Citation

  • Luca Macedoni, 2022. "Monopsonistic competition, trade, and the profit share," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(2), pages 488-515, April.
    • Handle: RePEc:bla:scandj:v:124:y:2022:i:2:p:488-515
    DOI: 10.1111/sjoe.12457
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