Estimating Market Power from Input-Output Tables and Entropy Econometrics

Abstract

The study of market power has gained a lot of attention by scholars and policy-makers since De Loecker and Eeckhout (2018). In their work, they show the temporal evolution of market power worldwide using detailed data from the financial statements of thousands of firms. In this paper, we propose an alternative way of estimating market power using sectoral-based data. By utilizing the aggregates observable in a series of Input-Output Tables (IOT's) and by applying an estimation procedure based on entropy; indicators of market power can be derived without requiring the use of micro-data. We document a heterogeneous evolution of market power across 28 European countries and 14 manufacturing sectors between 2000 - 2014. Market power is found to be rising for several central- and East-European countries, while decreasing in multiple South- and West-European nations.