The relative burden of monopoly on households with different incomes

This paper examines the relative burden of monopoly, measured as the (static) loss of consumers' surplus for different household income levels. Australian Household Expenditure Survey data are used to generate demand elasticities for 14 commodity groups and to obtain estimates of the relative welfare loss for households with different income levels. The welfare loss associated with monopoly power is found to be higher for low-income households (such as households that depend on government pensions and benefits for their principal source of income) compared with high-income households. The results provide an indication that, whatever the size of the absolute welfare loss arising from monopoly, there may be a substantial effect on the distribution of welfare.