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Monopolistic competition and income dispersion

  • OSHARIN, Alexander

    ()

    (NRU-Higher School of Economics, Russia)

  • THISSE, Jacques-François

    ()

    (Université catholique de Louvain, CORE, Belgium)

  • USHCHEV, Philip

    ()

    (NRU-Higher School of Economics, Russia)

  • VERBUS, Valery

    ()

    (NRU-Higher School of Economics, Russia)

We develop a model of monopolistic competition that accounts for consumers' heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers' tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013071.

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Date of creation: 31 Dec 2013
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Handle: RePEc:cor:louvco:2013071
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  1. Paolo Bertoletti & Federico Etro, 2013. "Monopolistic Competition when Income Matters," DEM Working Papers Series 055, University of Pavia, Department of Economics and Management.
  2. Yurko, Anna V., 2011. "How does income inequality affect market outcomes in vertically differentiated markets?," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 493-503, July.
  3. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques-François Thisse, 2012. "Monopolistic competition: Beyond the constant elasticity of substitution," ULB Institutional Repository 2013/224564, ULB -- Universite Libre de Bruxelles.
  4. Tarasov, Alexander, 2009. "Consumer Preferences in Monopolistic Competition Models," MPRA Paper 19990, University Library of Munich, Germany.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  6. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  7. Fajgelbaum, Pablo & Grossman, Gene M. & Helpman, Elhanan, 2011. "Income distribution, product quality, and international trade," Policy Research Working Paper Series 5843, The World Bank.
  8. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
  9. Behrens, Kristian & Murata, Yasusada, 2007. "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 776-787, September.
  10. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  11. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2005. "A Model Of Monopolistic Competition With Personal Income Dispersion," Metroeconomica, Wiley Blackwell, vol. 56(3), pages 305-317, 07.
  12. Grandmont, Jean-Michel, 1987. "Distributions of Preferences and the 'Law of Demand.'," Econometrica, Econometric Society, vol. 55(1), pages 155-61, January.
  13. Reto Foellmi & Josef Zweimueller, . "Inequality, Market Power, and Product Diversity," IEW - Working Papers 145, Institute for Empirical Research in Economics - University of Zurich.
  14. Markusen, James R., 2010. "Putting Per-Capita Income back into Trade Theory," CEPR Discussion Papers 7790, C.E.P.R. Discussion Papers.
  15. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, vol. 51(4), pages 997-1019, July.
  16. Di Comite, Francesco & Thisse, Jacques-François & Vandenbussche, Hylke, 2014. "Verti-zontal differentiation in export markets," Journal of International Economics, Elsevier, vol. 93(1), pages 50-66.
  17. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
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