Monopolistic Supply of Sorting, Inequality and Welfare
67 Pages Posted: 21 Nov 2018 Last revised: 31 Jan 2019
Date Written: November 21, 2018
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: Suggested Citation