Download This PaperInequality: A Hidden Cost of Market Power
Sean F Ennis, Pedro Gonzaga, Chris Pike, Inequality: A hidden cost of market power, Oxford Review of Economic Policy, Volume 35, Issue 3, Autumn 2019, Pages 518–549, Doi.org/10.1093/oxrep/grz017
38 Pages Posted: 29 Mar 2017 Last revised: 2 Apr 2020
Date Written: April 25, 2019
Abstract
This paper explores the impact of competition on inequality by developing a new model to illustrate how higher profits from market power, and associated higher prices, could influence the distribution of wealth and income. We analyse data from eight OECD countries – Canada, France, Germany, Korea, Japan, Spain, the United Kingdom and the United States. In an average country in the sample, market power increases the wealth of the richest 10% by between 12% and 21% for a range of reasonable assumptions about savings behaviour, while it reduces the income of the poorest 20% by between 14% and 19%. The results contribute to the economic literature on the origins of inequality, suggesting that competition may help to reduce economic inequality.
Keywords: competition, inequality, market power, wealth distribution, income distribution
JEL Classification: D31, D42, D63
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