Market Structure and Macroeconomic Fluctuations

MARKET STRUCTURE and macroeconomic fluctuations are related to each
other in two different ways. First, macroeconomic fluctuations reveal a
good deal about market structure. Students of industrial organization
have not generally exploited cyclical movements in their research; they
have concentrated almost entirely on cross-sectional analysis. One of
my goals in this paper is to look at some standard issues in industrial
organizationt hrought ime series variationi n individuali ndustriesa s it is
associated with the aggregate business cycle. Second, market structure
has an important role in the propagation of macroeconomic shocks. In
competitive industries, there are strong forces pushing toward equilibrium.
Hence, competitive market structure seems to require an equilibrium
interpretation of fluctuations. Where sellers have market power,
on the other hand, there is no presumption of full, efficient resource
utilization. Fluctuations may be the perverse consequence of noncompetitive
conditions.