American Economic Review Vol. 115 No. 9 2025

Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry

Kory Kroft¹; Yao Luo²; Magne Mogstad³; Bradley Setzler⁴

¹ University of Toronto and NBER (email: ) · ² University of Toronto (email: ) · ³ University of Chicago, Statistics Norway, NBER, and IFS (email: ) · ⁴ Pennsylvania State University and NBER (email: )

Abstract

We develop, identify, and estimate a model of imperfect competition in both labor and product markets. Our context is the US construction industry, where firms compete for workers, private market projects, and government procurements. Our empirical approach leverages bidding data from procurement auctions linked to employer-employee tax records. We find imperfect competition in both markets generates a total wage markdown of more than 30 percent and a total price markup of around 45 percent. By contrast, if one erroneously assumed a perfectly competitive product (labor) market, then one would conclude wages (prices) are marked down (up) by only 20 percent (16 percent).

DOI

10.1257/aer.20220577

Volume

115

Issue

9

Pages

2926-2969

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓