Topics on firm heterogeneity and economic policy
type: CreativeWork
description: This thesis presents a series of works exploring individual firm behavior and how that affects the macroeconomics data. Chapter one explores the trends in competition, markups and market shares in a general equilibrium model. Over the last 30 years markups, as well as advertising expenses, have increased substantially. Moreover, there is a positive correlation between marketing expenditures and markups, a feature that standard models of monopolistic competition based on Dixit-Stiglitz have found it difficult to obtain. The model here adds endogenous market expansion choice (through product marketing) for firms to an otherwise standard monopolistic competition model. The marketing is modeled as a contest in which heterogeneous firms can shift the demand of the variety they produce, but also suffer from other firms engaging in the same activity. In the model's equilibrium, product marketing and pricing decisions interact with each other, altering markups proportional to the level of marketing expenditures by individual firms. This is another result that many empirical studies find. The model also creates a link between total factor productivity and markups through investments in product marketing. The model shows that markups and market concentration depends on the variance of total factor productivity. It also illustrates how the elasticity of substitution in an industry can affect the markup distribution. The second chapter is based on the work co-authored with Dr. Mattias Polborn, where we analyze a theoretical model in which entrepreneurs' property rights are threatened by ``raiders'' who can challenge them to a contest for control of their firms. Entrepreneurs have heterogeneous productivity and decide how much capital to invest before raiders decide whom to attack. In equilibrium, low productivity entrepreneurs are unaffected by the existence of raiders, while mid- and high-productivity entrepreneurs suffer. However, while raiders essentially act as a tax for th…
abstract: This thesis presents a series of works exploring individual firm behavior and how that affects the macroeconomics data. Chapter one explores the trends in competition, markups and market shares in a general equilibrium model. Over the last 30 years markups, as well as advertising expenses, have increased substantially. Moreover, there is a positive correlation between marketing expenditures and markups, a feature that standard models of monopolistic competition based on Dixit-Stiglitz have found it difficult to obtain. The model here adds endogenous market expansion choice (through product marketing) for firms to an otherwise standard monopolistic competition model. The marketing is modeled as a contest in which heterogeneous firms can shift the demand of the variety they produce, but also suffer from other firms engaging in the same activity. In the model's equilibrium, product marketing and pricing decisions interact with each other, altering markups proportional to the level of marketing expenditures by individual firms. This is another result that many empirical studies find. The model also creates a link between total factor productivity and markups through investments in product marketing. The model shows that markups and market concentration depends on the variance of total factor productivity. It also illustrates how the elasticity of substitution in an industry can affect the markup distribution. The second chapter is based on the work co-authored with Dr. Mattias Polborn, where we analyze a theoretical model in which entrepreneurs' property rights are threatened by ``raiders'' who can challenge them to a contest for control of their firms. Entrepreneurs have heterogeneous productivity and decide how much capital to invest before raiders decide whom to attack. In equilibrium, low productivity entrepreneurs are unaffected by the existence of raiders, while mid- and high-productivity entrepreneurs suffer. However, while raiders essentially act as a tax for th…
author: Grigoryan, Aram
language: en
keywords: macroeconomics, firm distribution, marketing expenditures, advertising, heterogeneous firms, contests, economics, monetary policy
date published: 2021-09-17T02:34:25Z
date modified: 2026-07-22T22:24:52Z
provider: University of Illinois - Urbana-Champaign
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: University of Illinois at Urbana-Champaign

PropertyValue
property ID: Handle
value: http://hdl.handle.net/2142/110662