• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site

Working paper

Monopolistic competition and income dispersion

Osharin A., Thisse J., Ushchev P., Verbus V. A.
We develop a model of monopolistic competition that accounts for consumers' heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers' tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.