Preference for Product Variety and City Size

In this paper, we examine the effect on city size of household preference for product variety. There are many theoretical analyses that have attempted to clarify the determinants of city size in the urban literature. Comparative static analyses are used to find out what happens to the equilibrium city size if the exogenous variables change by a small amount. Using the model of monopolistic competition, we provide a simple model of product variety to show that the equilibrium city size depends on the degree of household preference for product variety. The main result is that the strong preference for product variety promotes the formation of a large city.