https://macropaperwarehouse.com/authors/jan-de-loecker/Jan De LoeckerHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/manager-pay-inequality-and-market-power/https://macropaperwarehouse.com/papers/manager-pay-inequality-and-market-power/<p>This paper asks whether managers are paid for market power. Bao, De Loecker, and Eeckhout build a general equilibrium model in which firms compete oligopolistically in goods markets (following Atkeson and Burstein 2008) while managers are allocated to firms through a competitive matching market (following Gabaix and Landier 2008 and Tervio 2008). The model identifies two distinct channels through which market power and firm size jointly determine executive compensation: a market power channel, whereby a more productive firm charges a higher markup given its output level, and a firm size channel, whereby higher total factor productivity expands output given markups. Because manager ability and firm type are complementary inputs into TFP, assortative matching arises: high-ability managers sort into high-type firms, amplifying both productivity dispersion and markup dispersion across firms.</p>