Monopolistic Competition and Quality Innovation with Variable Demand Elasticity

Gilad Sorek

No auwp2024-05, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: I study product-quality innovation under monopolistic competition with variable demand elasticity preferences and variable marginal cost. I characterize the free-entry equilibrium and the market size effect on product quality and markups. I then compare these results with the ones obtained in related studies of markets with process innovation and show that the market size effect on equilibrium markups depends on innovation type. Lastly, I show that the normative properties of the market equilibrium depend solely on the preferences characteristics, as in the canonical monopolistic competition framework with no innovation.

Keywords: Quality Innovation; Variable Demand Elasticity; Monopolistic Competition (search for similar items in EconPapers)
JEL-codes: L1 O30 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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