Pricing Inequality / Simon Mongey, Michael E. Waugh.

Format:

Book

Author/Creator:

Mongey, Simon.

Contributor:

Waugh, Michael E.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w33399.

NBER working paper series no. w33399

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2025.

Summary:

This paper studies household inequality and product market power in dynamic, general equilibrium. In our model, households' price elasticities of demand endogenously vary with wealth. Heterogeneous firms set their price as oligopolistic competitors given the endogenous distribution of demand. A firm's market power varies with the distribution of demand as households with different elasticities sort into high- and low-price varieties. Under standard preferences, larger firms' products are more appealing, sell at higher prices, to more households, and a relatively richer customer base, face less elastic demand, and set higher markups. Quantitatively (a) our model rationalizes a wide set of recent empirical studies in the cross-section of households and firms, (b) we find household heterogeneity to be a dominant source of markup variation across firms, and (c) a one-time fiscal transfer of one percent of GDP to households leads to a 0.3 percentage point increase in the aggregate markup.

Notes:

January 2025.

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