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Competition and Inequality: Aiyagari meets Bertrand and Cournot

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  • Andrea, Colciago
  • Rajssa, Mechelli

Abstract

This paper provides an incomplete markets model with oligopolistic competition among an endogenous number of producers. The model matches the empirical distribution of income and wealth in the United States. The interaction between oligopolistic competition and incomplete markets reconciles the increase in the profit share of income with the decrease in the labor share of income and the increase in income inequality observed over the last three decades in the United States. Welfare costs associated with an increase in market power are large and unequally distributed across households.

Suggested Citation

  • Andrea, Colciago & Rajssa, Mechelli, 2019. "Competition and Inequality: Aiyagari meets Bertrand and Cournot," Working Papers 398, University of Milano-Bicocca, Department of Economics, revised Jan 2019.
    • Handle: RePEc:mib:wpaper:398
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    1. Corina Boar & Virgiliu Midrigan, 2019. "Markups and Inequality," NBER Working Papers 25952, National Bureau of Economic Research, Inc.
    2. Jasper de Jong & Emmanuel De Veirman, 2019. "Heterogeneity and Asymmetric Macroeconomic Effects of Changes in Loan-to-Value Limits," Working Papers 635, DNB.

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