Consumer Preferences in Monopolistic Competition Models

Alexander Tarasov

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a novel approach to modeling preferences in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the effects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of firms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.

Keywords: firm prices; intensity of competition; consumer income. (search for similar items in EconPapers)
JEL-codes: D43 F12 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-com and nep-ind
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https://mpra.ub.uni-muenchen.de/19990/1/MPRA_paper_19990.pdf original version (application/pdf)

Related works:
Working Paper: Consumer Preferences in Monopolistic Competition Models (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:19990

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