Continuous spatial monopolistic competition : matching goods with consumers
Title: Continuous spatial monopolistic competition : matching goods with consumers
Series/Number: EUI MWP; 2018/01
Our new approach enriches the general additive monopolistic competition model (AMCM) with a space of product characteristics: consumers' “ideal varieties''. Unlike Hotelling, such partially localized competition involves intersecting zones of service among (continuously distributed) producers. Then, the uniform equilibrium firms' density increases with a growing population, as in the case of the usual AMCM. However, now increasing/decreasing prices are determined by the increasing/decreasing elasticity of elementary utility (instead of demand elasticity in AMCM). A new characteristic – the firm's range of service – decreases. Such finer matching between buyers and sellers becomes a new source of welfare gain from a thicker market, unlike the variety benefit in AMCM. The free-entry competition remains socially excessive under some natural preferences.
Subject: Monopolistic competition; Spatial competition; Optimal product diversity; Gains from trade; Finer; Matching; L11; L13
Type of Access: openAccess