Consumer surplus and CES demand

Thijs ten Raa

Oxford Economic Papers, 2015, vol. 67, issue 4, 1165-1173

Abstract: This article presents the consumer surplus formula for constant elasticity of substitution (CES) demands. The formula is used to compare the monopoly and optimum provisions of product variety. It is shown that a monopolist under-provides variety. This result is contrasted with Lambertini’s analysis of the monopolist’s optimal R&D portfolio. I also contrast my approach with the indirect utility technique of Anderson, de Palma, and Thisse’s discrete choice theory of product differentiation.

Date: 2015
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