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A Market With A Social Consumption Externality

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  • JAMES W. FRIEDMAN
  • ISABEL GRILO

Abstract

We model a spatial market in which the utility of each consumer is affected by the consumers who buy precisely the same product. The marginal contribution of consumers x's purchase on consumer y depends on |x–y|, which declines as |x–y| increases. Such modelling of preferences fits goods that signal a consumer's place in society—clothing styles, automobiles and jewellry are examples. For 2n + 1 firms we find the unique symmetric equilibrium and derive comparative statics on the optimal number of firms, the largest number of firms the market can support, and the behaviour of profits per firm as n increases.

Suggested Citation

  • James W. Friedman & Isabel Grilo, 2005. "A Market With A Social Consumption Externality," The Japanese Economic Review, Japanese Economic Association, vol. 56(3), pages 251-272, September.
    • Handle: RePEc:bla:jecrev:v:56:y:2005:i:3:p:251-272
    DOI: 10.1111/j.1468-5876.2005.00331.x
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    Cited by:

    1. Hans Peters & Marc Schröder & Dries Vermeulen, 2018. "Hotelling’s location model with negative network externalities," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(3), pages 811-837, September.
    2. Andreea Cosnita‐Langlais & Alexander Rasch, 2023. "Horizontal mergers, cost savings, and network effects," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 65-82, January.
    3. Dorothée Brécard, 2013. "Environmental Quality Competition and Taxation in the Presence of Green Network Effect Among Consumers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 1-19, January.

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