A MODEL OF MONOPOLISTIC COMPETITION WITH PERSONAL INCOME DISPERSION
We introduce non-homothetic preferences in the Dixit-Stiglitz model of monopolistic competition, and enquire about the effects of a change in income dispersion on the firms' optimal decisions and market equilibrium. Income dispersion, modeled as a mean preserving spread, is shown to affect only the degree of product differentiation under the standard negligibility hypothesis on the firms' decision making process, while it generates a positive co-movement of demand and demand elasticity, when this assumption is removed and the price index effect is taken into account. Copyright Blackwell Publishing Ltd 2005.
Year of publication: |
2005
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Authors: | Benassi, Corrado ; Chirco, Alessandra ; Colombo, Caterina |
Published in: |
Metroeconomica. - Wiley Blackwell, ISSN 0026-1386. - Vol. 56.2005, 3, p. 305-317
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Publisher: |
Wiley Blackwell |
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