We analyze a macroeconomic model of monopolistic competition in which consumers earn unequal incomes. When preferences are non-homothetic, the distribution of income affects equilibrium mark-ups and equilibrium product diversity. Inequality, Market Power, and Product Diversity Reto Foellmi, University of Zurich Josef Zweimüller, University of Zurich, CESifo, IZA, and CEPR∗†