Competition and Inequality: Aiyagari meets Bertrand and Cournot

Abstract

This paper provides an incomplete markets model with oligopolistic competition among an endogenous number of producers. The model matches the empirical distribution of income and wealth in the United States. The interaction between oligopolistic competition and incomplete markets reconciles the increase in the pro…t share of income with the decrease in the labor share of income and the increase in income inequality observed over the last three decades in the United States. Welfare costs associated with an increase in market power are large and unequally distributed across households.

Heterogeneity and Asymmetric Macroeconomic Effects of Changes in Loan-to-Value Limits

“…A measure of such a model's success in matching the empirical wealth distribution is the extent to which it matches the wealth shares of the lowest and highest quintiles of the distribution. In addition to Krueger, Mitman, and Perri (2016), see Carroll, Slacalek, and Tokuoka (2015) andColciago and Mechelli (2019).…”

“…9 There are plausible reasons why very high LTVs are more likely to fall under the two exceptions to the limit applying to starters. Our intuition is that borrowers to whom banks lend at high LTVs tend to have a high income such that they are more likely to fall under the income-based exception to the LTV limit.…”