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In the last few decades, the vast majority of US industries experienced a broad growth in profit rates, in sales concentration, and in estimated price markups. These trends were accompanied by persistent drops in firm entry rates, in the number of publicly traded firms and in the labor share of income, together with a rising stock market capitalization to GDP ratio. The increase in rents could be one of the reasons behind the surge in inequality documented in the United States over the same period. This paper links the debate concerning the decrease in competitiveness and business dynamism with that on rising inequality. To do so, it builds a quantitative framework with strategic interactions between an endogenous number of firms and incomplete markets. Our analysis makes four contributions: (i) it provides a model that matches the concentration of the US empirical income and wealth distributions; (ii) it jointly explains the trends described above through an increase in entry costs for new firms, which limits the extent of competition; (iii) through those trends it accounts for 25% to 50% of the increase in income inequality observed between 1989 and 2007 and for about 30% of the increase in wealth inequality; (iv) it finds that welfare costs associated with lower competition are large and unevenly distributed across households. Just 3% of the population experiences a welfare gain during the transition from a high to a low competition environment. These households benefit from an increase in the price markup because a large fraction of their income comes from stocks ownership.
