Competition and inequality

Working paper

This paper links the debate on the decrease in competitiveness and busi ness dynamism with that on rising inequality. We build a framework with entry, imperfect competition, heterogeneous households, and incomplete markets. Recent trends in markups, factorsíshare, and business dynamism are explained through an increase in barriers to entry for new Örms, 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 in crease 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.

Authors: Colciago, A; Mechelli, R

• Publication status: Published
• Publisher: University of Oxford
• Article number: 914
• Series: Department of Economics Discussion Paper Series
• Publication date: 2020-07-01
• ISSN: 1471-0498
• Paper number: 914
• Language: English
• Keywords: inequality; oligopoly; incomplete markets; entry; markups