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Monopolistic competition and income dispersion

Alexander Osharin, Jacques Thisse (), Philip Ushchev () and Valery Verbus

Economics Letters, 2014, vol. 122, issue 2, 348-352

Abstract: We develop a model of monopolistic competition that accounts for consumers’ heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers’ tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.

Keywords: Heterogeneous consumers; Income redistribution; Toughness of competition; Monopolistic competition (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Monopolistic competition and income dispersion (2013) Downloads
Working Paper: Monopolistic competition and income dispersion
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