The market, competition, and equality

How much inequality does market interaction generate? The answer to this question partly depends on the level of competition among economic agents. Yet, in their normative analysis of the market, theories of distributive justice focus on individual characteristics such as talents as determinants of income, and tend to ignore structural features such as competition. Economists, on the other hand, dispose of the conceptual tools to assess the distributive impact of competition, but their analysis is usually limited to allocative efficiency. Part I of the article distinguishes my argument from conventional perspectives on income inequality and redistribution. Whereas the latter propose either to redistribute income once the market interaction has taken place or to adjust the initial holdings of market participants, I focus on the distributive impact of the institutional structure of the market itself. Part II outlines the ways in which various forms of competition affect distribution. My objective here is descriptive in nature, but shows that a normative evaluation of the market has to take seriously the distributive impact of competition. This impact can be broken down into the analysis of three overlapping groups of economic agents, namely consumers, workers, and capital owners. Consumers potentially gain from competition in the form of lower prices, but these gains are only realized if competition does not put pressure on their work income at the same time. Unless competition squeezes profits unusually hard, capital owners tend to benefit from competition.