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Continuous Spatial Monopolistic Competition: Matching Goods With Consumers

Author

Listed:
  • Sergey Kokovin

    (National Research University Higher School of Economics)

  • Maxim Goryunov

    (National Research University Higher School of Economics)

  • Takatoshi Tabuchi

    (University of Tokyo - Faculty of Economics)

Abstract

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 growing population, as with 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.

Suggested Citation

  • Sergey Kokovin & Maxim Goryunov & Takatoshi Tabuchi, 2017. "Continuous Spatial Monopolistic Competition: Matching Goods With Consumers," HSE Working papers WP BRP 173/EC/2017, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:173/ec/2017
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    Cited by:

    1. Sergey G. Kokovin & Shamil Sharapudinov & Alexander Tarasov & Philip Ushchev, 2020. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," CESifo Working Paper Series 8082, CESifo.

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    More about this item

    Keywords

    monopolistic competition; spatial competition; optimal product diversity; gains from trade; finer matching.;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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