Product Variety, Price Elasticity of Demand and Fixed Cost in Spatial Models

Yiquan Gu and Tobias Wenzel

No 92, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This paper explores the implications of price-dependent demand in spatial models of product differentiation. We introduce consumers with a quasi-linear utility function in the framework of the Salop (1979) model. We show that the so-called excess entry theorem relies critically on the assumption of completely inelastic demand. Our model is able to produce excessive, insufficient, or optimal product variety. A proof for the existence and uniqueness of symmetric equilibrium when price elasticity of demand is increasing in price is also provided.

Keywords: Demand elasticity; spatial models; excess entry theorem (search for similar items in EconPapers)
JEL-codes: L11 L13 (search for similar items in EconPapers)
Date: 2009
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Working Paper: Product variety, price elasticity of demand and fixed cost in spatial models (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:92

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