A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers

Sergey Kokovin, Alina Ozhegova, Shamil Sharapudinov, Alexander Tarasov, Philip Ushchev and Sergey G. Kokovin
Authors registered in the RePEc Author Service: Sergey Kokovin

No 10263, CESifo Working Paper Series from CESifo

Abstract: Our novel approach to modeling monopolistic competition with heterogeneous firms and consumers involves spatial product differentiation. Space can be interpreted either as a geographical space or as a space of characteristics of a differentiated good. In addition to price setting, each firm also chooses its optimal location in this space. We formulate conditions for positive sorting: more productive firms serve larger market segments and face tougher competition; and for the existence and uniqueness of the equilibrium. To quantify the role of the sorting mechanism, we calibrate the model using cross-sectional haircut market data and perform counterfactual analysis. We find that inequality in the distribution of the gains among consumers caused by positive market shocks can be substantial: the gains of consumers from more populated locations are 3-4 times higher.

Keywords: firm heterogeneity; geographical space; product space; positive sorting; product niches (search for similar items in EconPapers)
JEL-codes: F10 L11 L13 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers (2024)
Working Paper: A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10263

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