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On the Microfoundation of Linear Oligopoly Demand

Author

Listed:
  • Bos Iwan

    (Department of Organisation, Strategy and Entrepreneurship, Maastricht University. P.O. Box 616, 6200 MD, Maastricht, The Netherlands)

  • Vermeulen Dries

    (Department of Quantitative Economics, Maastricht University, Maastricht, The Netherlands)

Abstract

We critically assess the representative consumer with quadratic aggregate utility function which forms the foundation of a well-known class of linear oligopoly demand structures. It is argued that this approach is problematic and redundant. Regarding the latter, we show how the same demand system can be derived directly from a population of heterogeneous buyers for any number of products. Welfare analyses based on aggregate demand is shown to be sensitive to the underlying microfoundation.

Suggested Citation

  • Bos Iwan & Vermeulen Dries, 2022. "On the Microfoundation of Linear Oligopoly Demand," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 22(1), pages 1-15, January.
    • Handle: RePEc:bpj:bejtec:v:22:y:2022:i:1:p:1-15:n:6
    DOI: 10.1515/bejte-2019-0114
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    References listed on IDEAS

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    1. Jerison, Michael, 1997. "Nonrepresentative representative consumers," UC3M Working papers. Economics 4137, Universidad Carlos III de Madrid. Departamento de Economía.
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    5. James E. Hartley, 1996. "Retrospectives: The Origins of the Representative Agent," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 169-177, Spring.
    6. Amir, Rabah & Erickson, Philip & Jin, Jim, 2017. "On the microeconomic foundations of linear demand for differentiated products," Journal of Economic Theory, Elsevier, vol. 169(C), pages 641-665.
    7. Michael Kopel & Anna Ressi & Luca Lambertini, 2017. "Capturing Direct and Cross Price Effects in a Differentiated Products Duopoly Model," Manchester School, University of Manchester, vol. 85(3), pages 282-294, June.
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    Cited by:

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    3. Soeiro, Renato & Adrego Pinto, Alberto, 2019. "Social power as a solution to the Bertrand Paradox," MPRA Paper 94271, University Library of Munich, Germany.

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    More about this item

    Keywords

    microfoundations; oligopoly theory; product differentiation; representative consumer models; B4; L1;
    All these keywords.

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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