Why a decline in competition is detrimental for all aspects of the economy

We start with a simple theoretical model that explains the effect of competition on prices, corporate profit margins, production, employment and capital accumulation. This model clearly shows that a decline in competition drives up prices and profit margins, and drives down production, employment and capital stock, and therefore also potential growth and wage earners’ bargaining power. We then show that the developments seen in OECD countries are consistent with these lessons from the simple model. This illustrates the importance of increasing the intensity of competition in OECD countries.