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Income Inequality and Product Variety: Empirical Evidence

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Abstract

This article investigates the relationship between income inequality and firms’ locations and product choices. Using detailed information on income at a regionally disaggregated level and individual data on Austrian restaurants, we demonstrate that firm conduct crucially depends on the distribution (in addition to the level) of income. Local markets with higher income inequality are characterized by a larger number of firms, offering a broader range of products and product variants that are on average less common. These findings indicate that local demand is substantially influenced by the heterogeneity in consumers’ income endowments, resulting in large differences in product variety.

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  • Dieter Pennerstorfer & Nora Schindler & Christoph Weiss & Biliana Yontcheva, 2020. "Income Inequality and Product Variety: Empirical Evidence," Economics working papers 2020-17, Department of Economics, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:econwp:2020-17
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    More about this item

    Keywords

    income inequality; product variety; product differentiation; firm conduct; restaurants;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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