Functional Differentiation

Sällström, Susanna

No 7187, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Models of product differentiation typically assume a demand for variety. This paper derives the demand for variety in a model where a representative consumer chooses how many specialised varieties to purchase for the pursuit of different activities. In contrast with previous models this generates a demand for variety that is price and income elastic. In applications to monopoly and duopoly I find that whilst a duopoly will choose efficient characteristics it will offer too many specialised varieties, whereas a monopoly will either offer excessively specialised varieties or too few specialised varieties on the assumption of no fixed costs of variety.

Keywords: General purpose goods; Product differentiation; Specialised goods; Variety (search for similar items in EconPapers)
JEL-codes: D31 D42 D43 L11 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-mic
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