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Faculty of Economics

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De Ridder, M.

Market Power and Innovation in the Intangible Economy

CWPE1931

Abstract: This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs – such as software – can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and U.S. micro data. After initially boosting productivity, the rise of intangibles causes a significant decline in productivity growth, consistent with the empirical trends observed since the mid-1990s.

Keywords: Business Dynamism, Growth, Intangible Inputs, Market Power, Productivity

Author links:

PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1931.pdf

Open Access Link: https://doi.org/10.17863/CAM.79759