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Market power, technical progress and financial fragility

Delli Gatti, D; Gallegati, M; Palestrini, A; Tedeschi, G; Vidal-Tomás, D; (2024) Market power, technical progress and financial fragility. Journal of Economic Behavior and Organization , 217 pp. 435-452. 10.1016/j.jebo.2023.10.037. Green open access

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Abstract

We explore the nexus of market power, innovation and financial fragility by means of a macroeconomic agent based model whose core is the Dixit-Greenwald-Stiglitz (DGS) theory of firm behaviour, which nests the Greenwald-Stiglitz characterization of the firm as a borrower that runs the risk of bankruptcy in the Dixit-Stiglitz monopolistic competition setting. The optimal firm's size is increasing with net worth and productivity. Net worth increases with profits while productivity increases through R&D and innovation. Simulations show that in the presence of market power firms are more innovative and financially robust and less prone to bankruptcy. These features have not surfaced so far in standard characterizations of monopolistic competition.

Type: Article
Title: Market power, technical progress and financial fragility
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jebo.2023.10.037
Publisher version: https://doi.org/10.1016/j.jebo.2023.10.037
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Market power, Net worth, Productivity, Debt relief
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science
URI: https://discovery-pp.ucl.ac.uk/id/eprint/10186528
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