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Institutional Affiliations: Princeton University and MIT
NBER Working Papers and Publications
|January 2019||Low Interest Rates, Market Power, and Productivity Growth|
with Atif Mian, Amir Sufi: w25505
This study provides a new theoretical result that low interest rates encourage market concentration by raising industry leaders’ incentive to gain a strategic advantage over followers, and this effect strengthens as the interest rate approaches zero. The model provides a unified explanation for why the fall in long-term interest rates has been associated with rising market concentration, reduced business dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth. Support for the model’s key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.