A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers

Sergey Kokovin, Shamil Sharapudinov, Alexander Tarasov and Philip Ushchev

No 8082, CESifo Working Paper Series from CESifo

Abstract: Our novel approach to modeling monopolistic competition with heterogeneous consumers involves a space of characteristics of a differentiated good (consumers’ ideal points), alike Hotelling (1929). Firms have heterogeneous costs à la Melitz (2003). In addition to price setting, each firm also chooses its optimal location/niche in this space. We formulate conditions for positive sorting: more efficient firms serve larger market segments and face tougher competition in the equilibrium. Our framework entails rich equilibrium patterns displaying non-monotonic markups, high in the most and least populated niches, and the unequal gains from trade across different consumers.

Keywords: firm heterogeneity; product space; positive sorting; product niches (search for similar items in EconPapers)
JEL-codes: F10 L11 L13 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-bec, nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers (2024)
Working Paper: A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8082

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