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’