On the effects of income heterogeneity in monopolistically competitive markets

• 成果类型: Article
• 署名作者: Kichko, Sergei; Picard, Pierre M.
• 署名单位: University of Trento; University of Luxembourg; Universite Catholique Louvain
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2023.103759
• 发表日期: 2023
• 关键词: monopolistic competition; Nonhomothetic additive preferences; income inequality; Pricing-to-markets; welfare; TRADE

摘要

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. (c) 2023 Elsevier B.V. All rights reserved.