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Stand in the wind: Market power reformation during uncertain periods

Author

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  • Wang, Heng
  • Wei, Siqi
  • Zhu, Xiaoyang

Abstract

Economic policy uncertainty affects firm dynamics and profitability, and thus imposes an impact on firm markups and market power. Using quarterly data of the U.S. publicly listed firms over 1985Q1 to 2020Q3, this paper empirically shows a decline of firm markups under an uncertain environment. However, the decrease in average markup does not necessarily imply an increase in market competition due to the heterogeneous effects among firms. Specifically, an uncertain environment seems to advantage larger and more innovative firms compared with smaller or less innovative firms, indicating a disproportionate distribution of resource and market power reformation. We further show that the within industry markup dispersion, as well as the market concentration, increases given one standard deviation increase of economic policy uncertainty.

Suggested Citation

  • Wang, Heng & Wei, Siqi & Zhu, Xiaoyang, 2023. "Stand in the wind: Market power reformation during uncertain periods," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 12-28.
    • Handle: RePEc:eee:reveco:v:84:y:2023:i:c:p:12-28
    DOI: 10.1016/j.iref.2022.10.026
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic policy uncertainty; Markup; Market concentration; Local projection;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other

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