Competition and Inequality: Aiyagari meets Bertrand and Cournot
25 Pages Posted: 9 Jan 2019
Date Written: January 9, 2019
This paper provides an incomplete markets model with oligopolistic competition among an endogenous number of producers. The model matches the empirical distribution of income and wealth in the United States. The interaction between oligopolistic competition and incomplete markets reconciles the increase in the profit share of income with the decrease in the labor share of income and the increase in income inequality observed over the last three decades in the United States. Welfare costs associated with an increase in market power are large and unequally distributed across households.
Suggested Citation: Suggested Citation