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Competition and Inequality

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  • Rajssa Mechelli
  • Andrea Colciago

Abstract

This paper links the debate on the decrease in competitiveness and busi- ness dynamism with that on rising inequality. We build a framework withentry, imperfect competition, heterogeneous households, and incompletemarkets. Recent trends in markups, factors’share, and business dynamismare explained through an increase in barriers to entry for new …rms, whichrestrict competition. Those trends account for 11% to 22% of the increasein income inequality observed between 1989 and 2007 and for 10% of the in-crease in wealth inequality. Just 16% of the population experiences a welfaregain during the transition from a high to a low competition environment.These are either the wealthy, or agents with low productivity relative totheir asset holdings.

Suggested Citation

  • Rajssa Mechelli & Andrea Colciago, 2020. "Competition and Inequality," Economics Series Working Papers 914, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:914
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    1. Eren Gürer, 2022. "Rising markups and optimal redistributive taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1227-1259, October.

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    More about this item

    Keywords

    inequality; entry; oligopoly; markups; incomplete markets;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

    NEP fields

    This paper has been announced in the following NEP Reports:

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