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Consumer Preferences in Monopolistic Competition Models

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  • Tarasov, Alexander

Abstract

This paper develops a novel approach to modeling references in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the e¤ects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of �rms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.

Suggested Citation

  • Tarasov, Alexander, 2010. "Consumer Preferences in Monopolistic Competition Models," Discussion Papers in Economics 11489, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:11489
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    Cited by:

    1. Osharin, Alexander & Thisse, Jacques-François & Ushchev, Philip & Verbus, Valery, 2014. "Monopolistic competition and income dispersion," Economics Letters, Elsevier, vol. 122(2), pages 348-352.

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    More about this item

    Keywords

    fi�rm prices; intensity of competition; consumer income;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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