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Inequality: A hidden cost of market power

Author

Listed:
  • Sean F Ennis
  • Pedro Gonzaga
  • Chris Pike

Abstract

This paper explores the impact of competition on inequality by developing a new model to illustrate how higher profits from market power, and associated higher prices, could influence the distribution of wealth and income. We analyse data from eight OECD countries—Canada, France, Germany, Korea, Japan, Spain, the United Kingdom, and the United States. In an average country in the sample, market power increases the wealth of the richest 10 per cent by between 12 and 21 per cent for a range of reasonable assumptions about savings behaviour, while it reduces the income of the poorest 20 per cent by 11 per cent or more. The results contribute to the economic literature on the origins of inequality, suggesting that lack of competition may be one source of economic inequality.

Suggested Citation

  • Sean F Ennis & Pedro Gonzaga & Chris Pike, 2019. "Inequality: A hidden cost of market power," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(3), pages 518-549.
    • Handle: RePEc:oup:oxford:v:35:y:2019:i:3:p:518-549.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grz017
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    Citations

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    Cited by:

    1. Roya Taherifar & Mark J. Holmes & Gazi M. Hassan, 2023. "The drivers of labour share and impact on pay inequality: A firm-level investigation," Working Papers in Economics 23/03, University of Waikato.
    2. Weche John P. & Wagner Joachim, 2021. "Markups and Concentration in the Context of Digitization: Evidence from German Manufacturing Industries," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 241(5-6), pages 667-699, November.
    3. Adrián Rodríguez Valle & Esteban Fernández-Vázquez, 2023. "Estimating market power for the European manufacturing industry between 2000 and 2014," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 141-172, February.
    4. Chrysovalantis Amountzias, 2024. "Market power and income disparities: How can firms influence the gap between capital and labor earnings," Bulletin of Economic Research, Wiley Blackwell, vol. 76(3), pages 861-888, July.
    5. Stephen Davies & Franco Mariuzzo, 2022. "Inequality and concentration: Are the poor more exposed to concentrated markets?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2022-01, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    6. Comisión Nacional de los Mercados y la Competencia (CNMC), 2023. "Guide. Competition against inflation: How competition and efficient regulation help protect the purchasing power of consumers," Colección Estudios de Mercado G-2022-02_ENG, Comisión Nacional de los Mercados y la Competencia (CNMC).
    7. Franco Mairuzzo & Peter Ormosi, 2022. "Do the poor pay more for increasing market concentration? A study of retail petroleum," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-08, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    8. Ganglmair Bernhard & Kann Alexander & Tsanko Ilona, 2021. "Markups for Consumers," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 241(5-6), pages 701-734, November.
    9. Wang, Heng & Wei, Siqi & Zhu, Xiaoyang, 2023. "Stand in the wind: Market power reformation during uncertain periods," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 12-28.
    10. Jasmine Mondolo, 2021. "Macroeconomic dynamics and the role of market power. The case of Italy," DEM Working Papers 2021/17, Department of Economics and Management.
    11. Samuel Brien, 2021. "Wealth Inequality, Uninsurable Entrepreneurial Risk and Firms Markup," Working Paper 1476, Economics Department, Queen's University.
    12. Colonescu Constantin, 2021. "Price Markups and Upstreamness in World Input-Output Data," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 9(1), pages 71-85, September.
    13. Mondolo, Jasmine, 2021. "Macroeconomic dynamics and the role of market power. The case of Italy," MPRA Paper 110172, University Library of Munich, Germany, revised 05 Oct 2021.
    14. Han, Minsoo & Pyun, Ju Hyun, 2021. "Markups and income inequality: Causal links, 1975-2011," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 290-312.
    15. Mikołaj Raczyński, 2022. "Monetary policy and economic inequality: a literature review," Bank i Kredyt, Narodowy Bank Polski, vol. 53(2), pages 231-278.
    16. Adam Cellan-Jones & Hussein Farook & Riccardo Ferrari & Maxwell Harris & Alex Rutt & Mike Walker, 2022. "Recent Developments at the CMA: 2021–22," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(4), pages 381-403, December.

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