Reference : On the effects of income heterogeneity in monopolistically competitive markets”
Scientific congresses, symposiums and conference proceedings : Unpublished conference
Business & economic sciences : International economics
On the effects of income heterogeneity in monopolistically competitive markets”
Picard, Pierre M mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM) >]
Kichko, Sergey [Higher School of Economics]
European Economic Association
from 23 to 27 August 2021
European Economic Association
[en] Monopolistic competition ; nonhomothetic preferences ; income inequality,
[en] This paper studies the e¤ects of income heterogeneity on monopolistically competitive
product markets and welfare in the context of non-homothetic preferences. When richer
individuals expenditures are less sensitive to price change compared to poorer ones , a
mean-preserving contraction of income distribution entices rms to charge higher prices,
new rms enter and broaden product diversity. General equilibrium e¤ects have a negative
impact on poorer individuals and, in speci c circumstances, on whole population. In
open economies, lower income inequality in a country creates a price divergence between
countries and decreases trade volumes and values. Those general equilibrium e¤ects are
quantitatively non negligible.

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