Wilhelm Kohler

Market Inefficiency and Policy Responses

Firms often have market power due to product differentiation. Consequently, they pursue markup-pricing. At the same time, such products are often used, not just for consumption, but also as material inputs in production. One may speak of “roundaboutness” in production. In such an environment, the prices of intermediate inputs are distorted, relative to the price of primary inputs like labor: markup-prices make them appear more expensive than they are from a societal perspective. The market equilibrium can thus be expected to be inefficient, involving a less than optimal degree of “roundaboutness” in production. What, exactly does this market inefficiency look like? What can policy do to correct this inefficiency? How does this inefficiency affect the trade policy incentives? Wilhelm Kohler has provided tentative answers in a preliminary joint paper with Benjamin Jung: “Input-Output Linkages and Monopolistic Competition: Input Distortion and Optimal Policies.”

Mr. Kohler’s fields of interest are international trade (comparative advantage, offshoring, trade policy), international migration, and European integration. While visiting CESifo, he will pursue research on possible distortions generated by input-output linkages in economies characterized by monopolistic competition, with special attention paid to the welfare consequences of trade policy.

Wilhelm Kohler is Professor of Economics (retired) at the University of Tübingen and Scientific Director of the Institute for Applied Economic Research (IAW), Tübingen. He is also Research Professor in the Ifo Center for International Economics and Fellow of the CESifo Research Network. He was previously Professor of Economics at the University of Linz and Professor of Economics at the University of Essen. His journal editorships include The Review of International Economics and The Journal of International Economics and Economic Policy. He is also a member of the Review Board for Economics at the German Research Foundation (DFG). His doctorate as well as his postdoctoral degree (Venia Docendi) in Economics are from the Faculty of Economics and Social Science at the University of Innsbruck.