Product Differentiation, Monopolistic Competition, and Public Policy
AbstractThis paper generalizes a model of monopolistic competition attributable to Spence (1976). Firms produce symmetrically differentiated products with declining or U-shaped average costs. Free entry drives profits to zero in equilibrium. Spence finds that when firms behave "competitively," in a specific sense, the market equilibrium yields too little product diversity. However, when Spence's "competitive" behavioral assumption is relaxed, we find that the market may produce excessive diversity; this occurs when product differentiation is weak relative to scale economies of production. We also study two second-best regulatory policies and characterize conditions under which they are potentially effective in improving the market outcome.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 12 (1981)
Issue (Month): 1 (Spring)
Contact details of provider:
Web page: http://www.rje.org
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2010.
"Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 2(1), pages 51-76, February.
- David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2009. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," NBER Working Papers 15214, National Bureau of Economic Research, Inc.
- David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2009. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," Harvard Business School Working Papers 10-011, Harvard Business School.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.