Oligopolistic Competition and the Optimal Provision of Products

Simon Anderson, André de Palma () and Yurii Nesterov

Econometrica, 1995, vol. 63, issue 6, 1281-1301

Abstract: This paper reconsiders the theory of market versus optimal product diversity using a discrete choice approach to product differentiation. The authors analyze oligopoly with price competition and free entry with integer firm numbers. Under the Chamberlinian symmetry assumption, they show that log-concavity of the taste density function implies excessive market provision of diversity when each consumer buys one unit. This result is extended to price-sensitive individual demands by proving that the equilibrium number of firms exceeds that provided at the second-best optimum subject to zero profits. Copyright 1995 by The Econometric Society.

Date: 1995
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Related works:
Working Paper: Oligopolistic competition and the optimal provision of products (1995)
Working Paper: Oligopolistic Competition and the Optimal Provision of Products (1994)
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