peter praet : market power - a complex reality speech by mr peter praet, member of the executive board of the european central bank, at the eib / compnet conference, luxembourg, 18 march 2019. * * * diagnosing and quantifying firms ’ market power – the ability of firms to maintain prices above marginal cost – has long been a central topic for economists studying industrial organisation. 1 on the basis of detailed firm - level data, researchers analyse the market power of firms in specific industries. for a long time, market power was of little interest to macroeconomists, including central bankers. it first entered the field of macroeconomics as a topic of interest in the mid - 1980s, but only with a narrow focus on the cyclical pattern of markups – the margin firms charge over the marginal cost of output. in part, this is because macroeconomic models are generally founded on kaldor ’ s stylised facts, such as a constant labour share, constant profits and a constant capital - to - output ratio. such models implicitly assume that there are no trend changes in firms ’ market power. recently, however, trend changes in market power have elicited interest from macroeconomists following a number of us - based studies that challenge the underlying conventional assumption in macroeconomic models, namely that firms have constant market power. these studies document a rise in the market power of us firms over the past three decades, and especially since 2000. such changes in firms ’ market power at the aggregate level can have important macroeconomic implications. they could affect investment and the pricing behaviour of firms, but also productivity growth and, therefore, the natural rate of interest. for a central banker, it is thus of crucial importance to understand whether and how the prevailing level of firms ’ market power is evolving. in theory, it is fairly straightforward to define market power. in practice, however, it is difficult to pin down the level and evolution of market power empirically. there are two reasons for this. first, markups are not directly observable. second, there is no one - to - one mapping between firms ’ market power and point - in - time markup estimates. a firm with a small markup at any given moment can have significant market power when its pricing strategy aims to build up an ever - larger market share. as a result, assessing the level of firms ’ market power requires a variety of approaches to

the midst of poverty, seen lives change for the better, and communities grow in the process through the transformative power of microfinance. i am pleased to report to you that as of december 2006, total outstanding loans of 212 banks to more than 650, 100 microfinance borrowers had exceeded p4 billion. also as of december last year, these borrowers had accumulated modest savings averaging p2, 000 ( two thousand pesos ) each or a total of about p1. 4 billion! but, ladies and gentlemen, you and i know there is still so much more that needs to be done. millions of filipinos still live in poverty, without access to financial services that could empower them to better their lives. there is therefore an urgency to sustain our momentum, to bring microfinance to where it is needed the most, and thereby make a difference in uplifting the quality of life of our entrepreneurial and industrious poor. in this regard, we thank all those involved in the microentrepreneur of the year awards for providing our future microentrepreneurs the hope, and the inspiration, that they, too can have better lives with their families and with other members of their community through microfinance. mabuhay ang microfinance! marami pong salamat sa inyong lahat.