Market power and investment in advanced economies: monopolistic and ‘segmented’ competition

Recent studies have related market power in advanced economies to stagnating business dynamism and investment. This article addresses this issue at the firm level, using both markups and market shares as measures of market power. While our results show that market shares have a negative effect on investment, markups generally have a positive effect, which only becomes negative for very high markups. The negative effect of high markups on investment should not, however, be attributed to market leaders, but to smaller, niche firms. Thus, the current state of market power in advanced economies is one where “superstar firms” and niche firms or “segmented competition” coexist, and together put downward pressure on investment rates.