Seminario CEA - Miércoles 7/10/2026, 13:00 HRS - Sala de Consejo, piso 4, Beauchef 851 - "Market Power and Development" - Alvaro Garcia (U. Andes) with con Marcela Eslava y Julián Messina

Tema: «Market Power and Development«

Presenta: Alvaro Garcia (U. Andes)

We characterize firms’ market power for a wide range of countries with different levels of development, showing that firms in Less Developed Economies (LDCs) enjoy considerably larger power in both product and labor markets. To do so, we rely on data representative of small, medium, and large formal manufacturing firms in countries around the globe from the World Bank Enterprise Survey (WBES) and use the production function approach to estimate markups and labor wedges (gaps between wages and marginal revenue products of labor). Building on a model of wage bargaining, we decompose firms’ wedges between the marginal product of labor and wages into two distinct forces: firms’ monopsony markdown and workers’ bargaining power over rents in excess of non-labor costs, and analyze how these forces, map to the labor share to analyze its cross-country variation. We document that the labor share rises significantly with development and show that this development gradient is driven by three forces that systematically depress the labor share in less developed economies: (i) higher product market markups, (ii) weaker worker bargaining power, and (iii) a smaller pool of shareable labor quasi-rents. In contrast, pure monopsony power plays virtually no role in explaining the pattern. These findings underscore that separating employer power from worker bargaining strength is critical to interpreting differences in the distribution of income across levels of development.

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