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On variety effects and linear demand systems

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  • Radostina Shopova

    (Economic Research Institute, Bulgarian Academy of Sciences)

Abstract

This short paper complements Choné and Linnemer's (2020) study on linear demand systems for differentiated goods by addressing how these frameworks handle variation in the number of products 'n' and the associated variety effects. While Choné and Linnemer briefly discuss varying 'n' with Spence (1976) and Levitan and Shubik (1980), this note expands on their differences. The note highlights why the “shutting-down-variety-effects” approach of Levitan and Shubik can be problematic when 'n' varies, and argues that frameworks with parameters constant in 'n', such as Spence's, align better with rational consumer choice. The note acknowledges and complements a point made by Höffler (2008) on modeling product availability.

Suggested Citation

  • Radostina Shopova, 2025. "On variety effects and linear demand systems," Economics Bulletin, AccessEcon, vol. 45(3), pages 1260-1266.
    • Handle: RePEc:ebl:ecbull:eb-24-00526
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2025/Volume45/EB-25-V45-I3-P108.pdf
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    References listed on IDEAS

    as
    1. Federico Etro, 2024. "e‐Commerce platforms and self‐preferencing," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1516-1543, September.
    2. Choné, Philippe & Linnemer, Laurent, 2020. "Linear demand systems for differentiated goods: Overview and user’s guide," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    3. Debasmita Basak & Andreas Hoefele & Arijit Mukherjee, 2022. "Wage bargaining and product innovation: The role of market expansion effect," Manchester School, University of Manchester, vol. 90(3), pages 319-340, June.
    4. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
    5. Chung, Hoe Sang, 2023. "Entry and consumer welfare in a differentiated Cournot oligopoly," Economics Letters, Elsevier, vol. 231(C).
    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. Han Tien-Der & Haque M. Emranul & Mukherjee Arijit, 2022. "Product Differentiation in a Vertical Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 22(1), pages 105-122, January.
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    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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