We develop a model of monopolistic competition that accounts for consumers’ heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint...

The paper considers a two-country trade model of monopolistic competition featuring the heterogeneity of consumer preferences both within and across countries. The incorporation of heterogeneity into a traditional monopolistic competition setting is achieved by assuming different elasticities of...