Market Power in Finance

Growing evidence points to declining competition across industries in the United States, including the financial sector. Such findings have reinvigorated research efforts to understand the ramifications of rising market power for financial markets. In this article, we survey some of these efforts by reviewing the evidence and outlining a simple model structure that we find useful in organizing and examining links between trends in the competitive environment and financial markets. The framework is highly tractable and endogenously links market concentration, markups, and demand elasticities. Indeed, we think that the structure could serve as a building block in models that can help rationalize and connect some of the empirical evidence we review, as well as flesh out further implications in future research.