Events at CERGE-EI

Shubhdeep Deb, M.A.

Pompeu Fabra University, Spain

Abstract: The US economy has experienced a secular increase in markups, declining entrepreneurship rates and increasing income inequality since the 1980s. To reconcile with these secular trends, I propose a theory of entrepreneurial choice with strategic competition among heterogeneous agents. Agents’ decision to become either an entrepreneur or a worker is directly shaped by their competitors. I quantify the model for the period between 1988 and 2018 and find that technological change in the form of both higher fixed costs and more dispersed technologies, as well as a less competitive market structure can explain these trends. Viewed through the lens of the model, the primary factor underlying these secular changes is the increasing dominance of highly productive entrepreneurs who inhibit the entry of other productive agents, resulting in fewer entrepreneurs, higher markups and rising income inequality.

Keywords: Market Structure. Entrepreneurship. Inequality. Oligopoly. Markups

Full Text: How Market Structure Shapes Entrepreneurship And Inequality