Industrial policy in times of market power

We explore the effects of different industrial policies in a macroeconomic agent-based model calibrated to reproduce the decline in US business dynamism over the last half-century. R&D subsidies to innovators raise GDP growth but exacerbate the trend toward rising market power, while financial subsidies to adopters and standard capital-replacement schemes have negligible aggregate effects. A meaningful reversal of market power emerges only when innovation support is paired with adoption-oriented measures that relax the knowledge constraints of small adopters, e.g. the establishment of a National Competence Center providing technology transfer and knowledge upgrading. The effectiveness of each policy is dependent on the underlying technological regime: the growth–dynamism trade-off is sharpest in science-based regimes and attenuated in scale-intensive and supplier-dominated ones.