household welfare through capital gains due to changes in firm profits (Outreville 2015). The specialization of productive activities implies that, unlike the price channel that tends to affect all consumers, the other channels have localized impacts on a specific group of firms and workers belonging to the affected industry. Finally, competition reforms also might have dynamic effects by reallocating resources to more productive activities and higher growth industries (World Bank 2016). All these additional mechanisms have not yet been incorporated into the simulation approach.

The application of the tool to Mexican data is not aimed at any specific discussion of regulatory reform, nor does it imply that the firms in the markets discussed in this paper have or are abusing their market power (that is, that they are involved in anticompetitive practices). Instead, this paper focuses on the potential distributional impacts of abstract policy interventions or changes in market conditions affecting competition in specific markets, taking as a given the policies or behaviors under analysis. Similarly, this paper does not deal with the question of what type of behavior constitutes an abuse of market power or what the best policies are to remedy it (see Motta 2004; Buccirossi 2008 for discussions on these topics), nor with firms that may behave outside the conventional norm established in the microeconomic literature, such as public monopolies that provide subsidized services. Users of WELCOM should be aware of public sector participation in certain industries, such as energy, as this can have significant implications in measuring welfare effects. Users should therefore focus on products and services that are not provided by public entities, specifically because redistributive policies that are channeled through public entities are currently outside the scope of study of WELCOM.

# **6. Conclusion**

The labor share of income has declined consistently across the world over recent decades. In advanced economies, this share reached its lowest point between 2007 and 2008 (49.9 percent), while, among emerging markets, it reached only 34.7 percent in 2006 (IMF WEO 2017). Data from the U.S. Bureau of Labor Statistics also show a decline in the labor share of income (in the nonfarm business sector), which implies that the share of income going to capital has risen (Furman and Orzag 2015). The empirical evidence suggests that the profit rate (measured as markups) has also risen globally (De Loecker and Eekhout 2017). Such an increase in the profit rate and capital share of incomes has been associated with rising inequality (Crane 2016; Khan and Vaheesan 2017; Stiglitz 2012). These recent trends indicating a global rise in market power and market concentration demand analytical tools that allow to assess in a rapid and cost-efficient manner the distributional effects of changes in market concentration. However, current empirical studies that rigorously evaluate the distributional effects of variations in competition are time consuming, costly, and intensive in data requirements.

To fill this gap, this paper introduces a simple, yet novel microsimulation approach to assess the distributional impact of competition that combines expenditure data from household surveys with parameters on market structure in certain industries. This simulation approach adapts a set of flexible theoretical models (monopoly, oligopoly with a homogeneous good, and partial collusive oligopoly) into a user-friendly interface, WELCOM, which can be used to assess the impact of variations in market concentration on household welfare, poverty, and inequality. WELCOM provides a sound, rapid, and efficient option for predicting ex ante likely distributional impacts of competition in a user23