Local income inequality and product variety: empirical evidence

Abstract

This article investigates the relationship between local income inequality and firms’ location and product choices. Using detailed information on income at a regionally disaggregated level and individual data on Austrian restaurants, we show that product variety crucially depends on the distribution (in addition to the level) of income. Local markets with higher income inequality are characterized by a larger number of firms, offering a wider range of products and less common product variants. These findings suggest that local demand is substantially influenced by the heterogeneity of consumers’ income endowments, resulting in large differences in product variety.