Personal Income Distribution and Market Structure

Income distribution affects market demand and its elasticity, and, as a consequence, the optimal behaviour of firms and market equilibrium. This paper focuses on the effects of income polarization, and presents a model where – for any unimodal density function describing income distribution of the consumers – income polarization leads to market concentration, i.e., to a smaller number of firms able to survive in the long run, provided that the firms' fixed costs are sufficiently low.