Premium
Low Interest Rates, Market Power, and Productivity Growth
Author(s) -
Liu Ernest,
Mian Atif,
Sufi Amir
Publication year - 2022
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta17408
Subject(s) - economics , interest rate , productivity , market power , investment (military) , monetary economics , market rate , growth rate , factor market , macroeconomics , microeconomics , geometry , mathematics , politics , political science , law , monopoly
This study provides a new theoretical result that a decline in the long‐term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for antitrust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels.