Wealth, Price Dispersion and Risk Sharing Eungsik Kim ∗ Stephen Spear † Tepper School of Business Tepper School of Business Carnegie Mellon University Carnegie Mellon University (This version: March 2, 2018) PRELIMINARY DRAFT. PLEASE DO NOT CITE OR DISTRIBUTE WITHOUT PERMISSION OF THE AUTHORS. COMMENTS WELCOME. Abstract In this paper, we study how the market power of buyers can generate a dispersion over effective prices depending on wealth in an economy with imperfect competition. We ask how the imperfect competition brings about the consumption/income parallel without cap- ital market imperfection or impatient consumers. More importantly, we examine whether the strategic interaction reduces the risk sharing and increases the consumption volatility cross-sectionally in an incomplete market. In numerical analysis, we quantify the welfare loss from the complementary effect between the two friction: incomplete market and im- perfect competition. We find out the supermodular welfare loss takes about 2% out of the benchmark expected utility. Lastly, the structure of exogenous shocks determines the ad- ditional consumption inequality via imperfect competition. When the endowment of over- lapped generations are positively correlated under the exogenous uncertainty, the consump- tion volatility does not grow as much as an economy with an idiosyncratic shock where some agents are favorable by the shock and others are not. JEL classification: C72; C72; D51; D52; L16 Keywords: Incomplete Market; Wealth; Price Dispersion; Consumption Risk-Sharing; Shapley-Shubik Market Game; Permanent Income Hypothesis * Email address: eungsikk@andrew.cmu.edu † Email address: ss1f@andrew.cmu.edu 1