Title: Search Frictions, Market Power, and Long Run Growth
Reference Number: 1059
Publication Date: May 2003
JEL Classifcation: L16, O40, D83

Chung Yi Tse
The University of Hong Kong


This paper embeds product market search in an AK growth model to study the effects of search frictions on market structure, capital accumulation, and long run growth. The basic hypothesis is that search frictions, in giving rise to market power, result in higher prices and lower output levels. The falling demand for capital stemming from firms cutting back output then lowers the interest rate, dampening capital accumulation and slowing down growth. A decline in search frictions sets the process in reverse, eventually speeding up growth through the change in market structure. In the meantime, the stock market values of firms could fall.


Published in Journal of Economic Theory 116:2 (2004), pp. 323-346.

Key words: search, market strucuture, long run growth

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Last modified: 01/24/2007