Monopolistic Supply of Sorting, Inequality and Welfare

67 Pages Posted: 21 Nov 2018 Last revised: 31 Jan 2019

See all articles by Lisa Windsteiger

Lisa Windsteiger

Max Planck Institute for Tax Law and Public Finance

Date Written: November 21, 2018

Abstract

In this paper I present a model in which a monopolist offers citizens the opportunity to segregate into groups according to income. I focus initially on the case of two groups and show that a monopolist with fixed costs of offering the sorting technology will see profits increase as income inequality increases. I then analyze how the monopolist's optimal group partition varies with inequality and show that for a broad field of income distributions, monopolist profits increase with inequality, while at the same time total welfare of sorting given the monopolist's optimal schedule decreases. In the last section I examine how these findings generalize if the monopolist doesn't face costs of offering the sorting technology and can therefore offer as many groups as she wants.

Keywords: Stratification, Assortative Matching, Group Formation

JEL Classification: D83, D85, Z13

Suggested Citation

Windsteiger, Lisa, Monopolistic Supply of Sorting, Inequality and Welfare (November 21, 2018). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2018-15. Available at SSRN: https://ssrn.com/abstract=3288501 or http://dx.doi.org/10.2139/ssrn.3288501

Lisa Windsteiger (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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