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A Model Of Monopolistic Competition With Personal Income Dispersion

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  • Corrado Benassi
  • Alessandra Chirco
  • Caterina Colombo

Abstract

We introduce non‐homothetic preferences in the Dixit–Stiglitz model of monopolistic competition, and enquire about the effects of a change in income dispersion on the firms’ optimal decisions and market equilibrium. Income dispersion, modeled as a mean preserving spread, is shown to affect only the degree of product differentiation under the standard negligibility hypothesis on the firms’ decision making process, while it generates a positive co‐movement of demand and demand elasticity, when this assumption is removed and the price index effect is taken into account.

Suggested Citation

  • 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, July.
    • Handle: RePEc:bla:metroe:v:56:y:2005:i:3:p:305-317
    DOI: 10.1111/j.1467-999X.2005.00218.x
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    References listed on IDEAS

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    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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    8. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-597, June.
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    Cited by:

    1. Osharin, Alexander & Thisse, Jacques-François & Ushchev, Philip & Verbus, Valery, 2014. "Monopolistic competition and income dispersion," Economics Letters, Elsevier, vol. 122(2), pages 348-352.
    2. C. Benassi & A. Chirco & C. Colombo, 2015. "Beyond the Uniform Distribution: Equilibrium Prices and Qualities in a Vertically Differentiated Duopoly," Working Papers wp1044, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2019. "Vertical differentiation beyond the uniform distribution," Journal of Economics, Springer, vol. 126(3), pages 221-248, April.
    4. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2006. "Vertical Differentiation And The Distribution Of Income," Bulletin of Economic Research, Wiley Blackwell, vol. 58(4), pages 345-367, October.

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