Christian Reiner, senior researcher at LBS, has co-authored with Christian Bellak, Professor of economics at the Vienna University of Economics and Business, three blogposts on the new power of firms in Europe and in the US. The three essays (in German) are now available as a Working Paper No 4 as part of the LBS working paper series.
Firms may increase their profitability by having power over customers, workers, input suppliers and the state. As a result, they have incentives to undertake – legal or illegal – actions in order to increase their power relative to other groups in the economy. While higher profits may please mangers and shareholders, society is usually worse off if companies can escape competition and exercise their power to their own advantage. As a result, research on the power of firms is of interest not just to business scholars and economists, but also to public policy and society at large.
Recently, a new body of research has suggested that firms have increased their power in a large number of products and factor markets and in several developed countries. While this debate started in the US about three years ago, it is increasingly also of interest to European scholars. The three essays in this working paper contribute to this debate by (1) summarizing the evidence on market power in Europe, (2) explaining how firms are able to gain power over workers and may reduce wage growth as a result and by (3) formulating and addressing open research questions about the causes and consequences of the new power of firms.