Competition and Inequality: Aiyagari meets Bertrand and Cournot

25 Pages Posted: 9 Jan 2019

See all articles by Andrea Colciago

Andrea Colciago

De Nederlandsche Bank - Research Department; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Rajssa Mechelli

Catholic University of the Sacred Heart of Milan

Date Written: January 9, 2019

Abstract

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

Colciago, Andrea and Mechelli, Rajssa, Competition and Inequality: Aiyagari meets Bertrand and Cournot (January 9, 2019). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 398, Available at SSRN: https://ssrn.com/abstract=3312919 or http://dx.doi.org/10.2139/ssrn.3312919

Andrea Colciago (Contact Author)

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Rajssa Mechelli

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

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