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The Distributional Effect of Market Power and Its Implications for Inclusive Growth in Korea

  • 저자Minsoo Han
  • 발간일2019-07-18

In the absence of competition and effective regulation, market power leads to an increase in prices relative to marginal costs. These higher prices hurt consumers but benefit business owners, corporate managers, and executives, who are concentrated at the top of income distribution, by disproportionately shifting extra profits towards these top income earners. In recent research, Ju H. Pyun and I empirically explore the multi-faceted aspects of the increase in market power. In our baseline estimation, we find that an increase in market power is positively associated with rising income inequality. More interestingly, even within top income earners (top 10% income group), higher income groups (top 1% for instance) tend to disproportionately benefit more from an increase in market power than lower income groups (either top 5% or 10%). All of our main results seem to be robust with alternative data and methods. Despite its limitations, our preliminary analysis suggests that, to be more effective, the income-led growth model needs to shift from a narrow focus on pro-labor distributional policies to a more comprehensive approach that considers the risks of market concentration and restrictive business practices.  

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