On the Microfoundation of Linear Oligopoly Demand

Iwan Bos and Dries Vermeulen

The B.E. Journal of Theoretical Economics, 2022, vol. 22, issue 1, 1-15

Abstract: We critically assess the representative consumer with quadratic aggregate utility function which forms the foundation of a well-known class of linear oligopoly demand structures. It is argued that this approach is problematic and redundant. Regarding the latter, we show how the same demand system can be derived directly from a population of heterogeneous buyers for any number of products. Welfare analyses based on aggregate demand is shown to be sensitive to the underlying microfoundation.

Keywords: microfoundations; oligopoly theory; product differentiation; representative consumer models (search for similar items in EconPapers)
JEL-codes: B4 L1 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/bejte-2019-0114

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