Market Power and Wealth Distribution

Sean Ennis, Yunhee Kim

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Lack of competition can drive up prices of goods and services, with substantive negative effects for the poor, whose consumption basket is dominated by first necessity goods and services. Understanding the distributional effects of market power is important for showing the value of policies that reduce monopoly power, which yield positive effects on both growth and wealth distribution. Firms that possess market power can charge supracompetitive prices for their products and earn profits above the competitive rate of return. The impacts of these higher prices can, on net, be beneficial to holders of substantial financial assets because these holders may pay higher prices for their con- sumption but will receive more than a counterbalancing boost in income from the increased profits arising from their financial holdings. The increased prices will dispro- portionately harm the poor, who will pay more for goods without receiving a counter- balancing share of increased profits. Using new data, this study calibrates the overall impact of market power, showing a substantial impact on wealth inequality in the eight countries examined. In typical results, the share of wealth of the top 10 percent of households (by wealth) rises by 10 to 24 percent in the presence of market power. Reducing illegal or government-granted market power could reduce inequality.
Original languageEnglish
Title of host publicationA Step Ahead : Competition Policy for Shared Prosperity and Inclusive Growth
PublisherThe World Bank
Publication statusPublished - 27 Jun 2017

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