Competition and Inequality

49 Pages Posted: 21 Jul 2020

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: June 23, 2020

Abstract

This paper links the debate on the decrease in competitiveness and business dynamism with that on rising inequality. We build a framework with entry, imperfect competition, heterogeneous households, and incomplete markets. Recent trends in markups, factors’ share, and business dynamism are explained through an increase in barriers to entry for new firms, which restrict competition. Those trends account for 11% to 22% of the increase in income inequality observed between 1989 and 2007 and for 10% of the increase in wealth inequality. Just 16% of the population experiences a welfare gain during the transition from a high to a low competition environment. These are either the wealthy, or agents with low productivity relative to their asset holdings.

Keywords: inequality, entry, oligopoly, markups, incomplete markets

JEL Classification: E2, L1

Suggested Citation

Colciago, Andrea and Mechelli, Rajssa, Competition and Inequality (June 23, 2020). De Nederlandsche Bank Working Paper No. 689, Available at SSRN: https://ssrn.com/abstract=3652023 or http://dx.doi.org/10.2139/ssrn.3652023

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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