are left unchanged. Their model highlights that the poor care about prices more than product quality or other factors. Urzúa (2013) discovers welfare losses because of the exercise of market power in Mexico. His results suggest that the welfare losses deriving from firms with market power are larger among the poor, in the rural sector, and in the southern (poorest) states. Meanwhile, Brummund (2013) analyzes the effects on poverty reduction that arise because firms are behaving in a monopsonistic way, that is, paying lower wages and hiring fewer workers. Using data on Indonesia, the author finds a substantial increase in wages and employment and a corresponding lower poverty rate if the labor market is perfectly competitive. Ghani and Reed (2015) study the economic relationship between a monopoly ice manufacturer and retailers in Sierra Leone, highlighting the importance of market entry in promoting growth and welfare. According to the paper, growing competition disrupts collusive arrangements, thereby leading to a reduction in prices and other positive effects such as the establishment of trade credit services.

To clarify the conceptual relationship between market concentration and poverty, this paper develops a simple model to study the welfare effects of market power. The model relies on equivalent income functions and the class of poverty measures defined by Foster, Greer, and Thorbecke (1984) to estimate the welfare effects. The analysis is based on specific functional forms so that the relevant poverty measure can be calculated explicitly. In particular, equivalent income functions associated with an oligopolistic equilibrium are computed directly to simplify the welfare analysis. Then, comparative statics are developed in terms of exogenous variations in the number of firms in a market for a homogeneous good to determine the effects of greater market concentration on poverty.

The first set of results that emerge from this model shows that in an economy in which consumers have homogeneous skills (productivity) and there are different degrees of firm ownership, the negative price effect of market concentration is greater than the positive profit effect of firm ownership so that greater market concentration increases the poverty index.

The second set of results shows how in an economy wherein consumers have heterogeneous skills, there is a range of market concentrations for which the positive profit effect offsets the negative price effect as long as the degree of firm ownership among low-income consumers is sufficiently large and there is a significant productivity gap between less and more highly skilled workers. This second set of results suggests that declines in poverty in this context are only possible in the case wherein the poor have access to a share of oligopolistic rents. Although this scenario seems highly unlikely, this result has important implications for public policy for economies with less-than-perfect markets and where the social welfare function is to eradicate poverty. Following the fundamentals of the second welfare theorem, this result suggests the possibility for governments of taxing extranormal rents extracted by firms with market power and redistributing them through targeted _lump-sum_ social transfers, thereby contributing to poverty reduction by offsetting the welfare losses deriving from the price effect. The policy implications of these results follow Auriol and Warlters (2004), who find that raising the barriers to entry can be consistent with a deliberate government policy aimed at boosting tax revenue. Market entry fees, the authors argue, encourage the emergence of large taxpaying firms that collect rents and are easy to tax at low administrative cost through entry fees and profit taxes.

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