On variety effects and linear demand systems

Radostina Shopova ()
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Radostina Shopova: Economic Research Institute, Bulgarian Academy of Sciences

Economics Bulletin, 2025, vol. 45, issue 3, 1260 - 1266

Abstract: This short paper complements Choné and Linnemer's (2020) study on linear demand systems for differentiated goods by addressing how these frameworks handle variation in the number of products 'n' and the associated variety effects. While Choné and Linnemer briefly discuss varying 'n' with Spence (1976) and Levitan and Shubik (1980), this note expands on their differences. The note highlights why the “shutting-down-variety-effects” approach of Levitan and Shubik can be problematic when 'n' varies, and argues that frameworks with parameters constant in 'n', such as Spence's, align better with rational consumer choice. The note acknowledges and complements a point made by Höffler (2008) on modeling product availability.

Keywords: variety effects; linear demand systems; quasi-linear quadratic utility (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2025-09-30
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