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Generalized Separability and Integrability: Consumer Demand with a Price Aggregator

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  • Fally, Thibault

Abstract

This paper examines demand systems where the demand for a good depends on other prices only through a common price aggregator (a scalar function of all prices). We refer to this property as ``generalized separability'' and provide the functional forms of demand that this property implies when demand is rational, i.e., derived from utility maximization. Generalized separability imposes restrictions on either income or price effects, and greater flexibility is obtained by adding indirect utility as an additional aggregator. We provide examples and applications which encompass a large variety of examples from the literature. In particular, generalized separability can be used in simple general-equilibrium models to obtain a more tractable framework and yet generate a wider range of effects of market size and productivity on firm size, entry, and prices.

Suggested Citation

  • Fally, Thibault, 2022. "Generalized Separability and Integrability: Consumer Demand with a Price Aggregator," CEPR Discussion Papers 17249, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17249
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    Cited by:

    1. Etro, Federico, 2023. "Technologies for endogenous growth," Journal of Mathematical Economics, Elsevier, vol. 105(C).
    2. Raphael Auer & Ariel Burstein & Sarah Lein & Jonathan Vogel, 2024. "Unequal Expenditure Switching: Evidence from Switzerland," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(5), pages 2572-2603.
    3. Federico Etro, 2023. "Hybrid Marketplaces with Free Entry of Sellers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(2), pages 119-148, March.
    4. Paolo Bertoletti & Federico Etro, 2024. "Insufficient Entry in Monopolistic Competition," Working Papers 543, University of Milano-Bicocca, Department of Economics.
    5. Bhat, Chandra R., 2022. "A closed-form multiple discrete-count extreme value (MDCNTEV) model," Transportation Research Part B: Methodological, Elsevier, vol. 164(C), pages 65-86.
    6. Riazullah Shinwari & Imran Zakeria & Muhammad Usman & Muhammad Sadiq, 2024. "Revisiting the Relationship Between FDI, Natural Resources, and Economic Growth in Afghanistan: Does Political (in) Stability Matter?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 5174-5203, June.
    7. Luca Macedoni & Rui Zhang & Frederic Warzynski, 2024. "Fight or Flight? How Do Firms Adapt Their Product Mix in Response to Demand and Competition," CESifo Working Paper Series 11144, CESifo.

    More about this item

    Keywords

    Consumer demand; Separability; Price aggregator; Integrability; Rationalization; Non-homothetic preferences;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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