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Beyond the Great Reversal: Superstars, Unions, and the Euro

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  • Crescioli, Tommaso

    (European Institute, London School of Economics and Political Science)

  • Martelli, Angelo

    (European Institute, London School of Economics and Political Science)

Abstract

Has the Euro created a more competitive market? Using a staggered difference-in-differences design we find that the Euro has increased firm-level market power between 23% and 30% after its adoption. This happens because deepening economic integration creates a stronger competitive environment where superstar firms acquire a dominant position. Consistently with this explanation, the Euro effect on market power is between 8% and 9% larger for tradable industries and between 10% and 17% larger for firms in the top 1% of the Eurozone pre-Euro productivity distribution. This rise in market power is mainly driven by changes in labor market competition that more than compensates for the increase in product market competition. Again counterintuitively, we also find that unions under certain conditions can increase the market power of superstar firms. This happens in the presence of cooperation-enhancing institutions that favor agreements between labor and capital and raise firms’ competitiveness by diminishing markdowns.

Suggested Citation

  • Crescioli, Tommaso & Martelli, Angelo, 2022. "Beyond the Great Reversal: Superstars, Unions, and the Euro," Single Market Economics Papers WP2022/8, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    • Handle: RePEc:bda:wpsmep:wp2022/8
    DOI: 10.2873/906966
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    Keywords

    Competition; Single Currency; Superstar Firms; Market power; Labor Market Institutions;
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