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Published online by Cambridge University Press: 14 April 2022
We present in this chapter the empirical techniques used to measure market efficiency and its implications, starting with the so-called OP gap and its dynamic version. We will then discuss the Foster productivity decomposition method and the Hsieh and Klenow techniques to measure allocative inefficiency. Market inefficiency is also related to concentration and market power. When competition in a market is reduced, aggregate productivity growth may decrease, reducing consumer welfare.
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