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Monopsonistic competition, trade, and the profit share*

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I present a tractable international trade model of monopsonistic competition and heterogeneous firms, in which markups and markdowns are increasing with the size of firms. The model sheds new light on the effects of trade on the aggregate profit share. In a standard model with a Pareto distribution of firm characteristics, the profit share is constant; by augmenting the model with the assumption of monopsonistic competition, trade can increase the profit share under reasonable assumptions for the parameter values. Monopsonistic competition is, thus, a contributing factor to the documented decline in the labor share and rise in corporate profits.

Original languageEnglish
JournalScandinavian Journal of Economics
Pages (from-to)488-515
Number of pages28
Publication statusPublished - Apr 2022

Bibliographical note

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    Research areas

  • Firm heterogeneity, labor share, monopsonistic competition, profit share, variable markups

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