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16 May 2023
Article (Scientific journals)
On the effects of income heterogeneity in monopolistically competitive markets
Picard, Pierre M; Kichko, Sergey
2023In Journal of International Economics
Peer Reviewed verified by ORBi


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Keywords :
Monopolistic competition; nonhomothetic additive preferences; income inequality
Abstract :
[en] Abstract This paper studies the market and welfare effects of income heterogeneity in monopolistically competitive product markets in the context of nonhomothetic preferences. In a closed economy, where richer individuals' expenditures are less sensitive to price change compared to poorer ones', a mean-preserving contraction of income distribution entices firms to charge higher markups, reduce output, and fosters creation of new varieties. General equilibrium effects have a negative impact on poorer individuals and, in specific circumstances, on the whole population. In an open economy with free trade, lower income inequality in one country creates price divergence between trading countries. Lower inequality not only further decreases trade volumes and values but also creates a general equilibrium effect that may negatively affect poor individuals. Finally, general equilibrium effects are shown to be quantitatively nonnegligible.
Disciplines :
International economics
Author, co-author :
Picard, Pierre M ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)
Kichko, Sergey
External co-authors :
Language :
Title :
On the effects of income heterogeneity in monopolistically competitive markets
Publication date :
23 April 2023
Journal title :
Journal of International Economics
Publisher :
Elsevier, Amsterdam, Netherlands
Peer reviewed :
Peer Reviewed verified by ORBi
Focus Area :
Sustainable Development
Name of the research project :
Funders :
FNR - Fonds National de la Recherche


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