The Optimal of Provision of Products with Income Effects

Andre dePalma and Karim Kilani
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Andre dePalma: Universite de Cergy-Pontoise
Karim Kilani: Universite du Centre
Authors registered in the RePEc Author Service: André de Palma ()

No 1299, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: Discrete choice models have been used to describe imperfect competition between firms selling horizontally differentiated products. In all theoretical models, the indirect utility function is assumed to be linear in income so that there is no income effect. We consider here a situation in which income enters nonlinearly into the indirect utility function. We propose a correct (hicksian) measure of consumer surplus based on a willingness to pay principle. In order to grantee the existence of a price equilibrium, match values are assumed logconcavilly distributed. Using a correct measure of welfare, we extent the results of Anderson, de Palma and Nesterov to the case where income effects are involved. We proof that under these general assumptions, overentry prevails. Our findings, which extend the conventional discrete choice oligopoly approach provide various guidelines for empirical research.

Date: 2000-08-01
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