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Oligopolistic Competition and the Optimal Provision of Products

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  • Anderson, Simon P
  • de Palma, Andre
  • Nesterov, Yurii

Abstract

This paper reconsiders the theory of market versus optimal product diversity using a discrete choice approach to product differentiation. The authors analyze oligopoly with price competition and free entry with integer firm numbers. Under the Chamberlinian symmetry assumption, they show that log-concavity of the taste density function implies excessive market provision of diversity when each consumer buys one unit. This result is extended to price-sensitive individual demands by proving that the equilibrium number of firms exceeds that provided at the second-best optimum subject to zero profits. Copyright 1995 by The Econometric Society.

Suggested Citation

  • Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November.
  • Handle: RePEc:ecm:emetrp:v:63:y:1995:i:6:p:1281-1301
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