Finance and Market Concentration Using Agent-Based Modeling: Evidence from South Korea (1.0.0)
Amidst the global trend of increasing market concentration, this paper examines the role of finance in shaping it. Using Agent-Based Modeling (ABM), we analyze the impact of financial policies on market concentration and its closely related variables: economic growth and labor income share. We extend the Keynes meets Schumpeter (K+S) model by incorporating two critical assumptions that influence market concentration. Policy experiments are conducted with a model validated against historical trends in South Korea. For policy variables, the Debt-to-Sales Ratio (DSR) limit and interest rate are used as levers to regulate the quantity and cost of finance, respectively. Simulation results show that lowering interest rates alleviates market concentration, promotes economic growth, and increases the labor income share. In contrast, DSR regulation exhibits non-linear effects on these variables. Easing DSR regulations, similar to lowering interest rates, reduces market concentration, fosters growth, and increases the labor income share. However, if the regulations are excessively relaxed, market concentration rises again, and the labor income share declines. Firm-level analyses reveal that large firms dominate financial resources, leaving insufficient financing for small firms and exacerbating market concentration when DSR regulation is excessively loosened. These findings underscore the value of ABM in addressing this complex issue at both micro and macro perspectives. Additionally, this study highlights that the impact on market concentration varies based on the nature of financial policies and suggest that DSR regulatory policies, in coordination with monetary policies such as interest rates, can play a role in managing market concentration.
Release Notes
- Initial release of the simulation code for ‘Finance and Market Concentration Using Agent-Based Modeling: Evidence from South Korea’
Associated Publications
This is a companion discussion topic for the original entry at https://www.comses.net/codebases/a7827ec7-4b25-43db-91b1-80bc1f37a0dc/releases/1.0.0