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The Logit Model of Monopolistic Competition: Brand Diversity

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  • Besanko, David
  • Perry, Martin K
  • Spady, Richard H

Abstract

One of the important issues in the literature on monopolistic competition concerns whether the free entry equilibrium will provide sufficient variety of differentiated brands. This paper examines variety issue using the logit choice model to capture brand differentiation. The consumption value of each brand is drawn from the extreme value distribution, and the consumer then purchases the brand with the highest value. With the resulting demand structure, the authors' find that monopolistic competition results in two few firms and, thus, too few brands from the viewpoint of consumers. This result supports the findings of other models with symmetrically differentiated brands. Copyright 1990 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 38 (1990)
Issue (Month): 4 (June)
Pages: 397-415

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Handle: RePEc:bla:jindec:v:38:y:1990:i:4:p:397-415

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Llanes, Gastón & de Elejalde, Ramiro, 2013. "Industry equilibrium with open-source and proprietary firms," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 36-49.
  2. Christopher Coyne & Justin Isaacs & Jeremy Schwartz, 2010. "Entrepreneurship and the taste for discrimination," Journal of Evolutionary Economics, Springer, vol. 20(4), pages 609-627, August.
  3. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-76, September.
  4. Ramon Caminal & Lluís M. Granero, 2008. "Multi-product firms and product variety," Working Papers 338, Barcelona Graduate School of Economics.
  5. C. Robert Clark, 2003. "Advertising Restrictions and Competition in the Children's Breakfast Cereal Industry / Restrictions et compétition publicitaire dans l’industrie des céréales pour enfants," CIRANO Working Papers 2003s-30, CIRANO.

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