Regional income redistribution in an era of rising market concentration

Abstract

Starting from the superstar firm hypothesis of Autor et al. (2020), the paper conceptually analyses the regional industrial market power-induced effect on profit shares elaborating on the role of space. Our idea is that an industrial market power-induced effect exists, but this is heterogeneous across regions due to: i) the different capacity of regions to host superstar firms; ii) the multiplicative negative effects on inequalities that propagate in the area through the local filière of companies. We test these assumptions in European Union regions, thanks to a micro-level approach able to capture the real income redistribution between capital and labor remuneration, in different regions. The industry market power-induced effect on profit share is estimated for 82 industries competing at European level, observed between 2013 and 2019. Our findings suggest that the increase in the firms’ profit share is positively affected by an increasing industrial market power, and that this is higher, the larger the number of superstar firms located in the region. This effect is more intense in regions highly specialized in the same industry as the superstar firms located there.