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A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers

Author

Listed:
  • Sergey Kokovin
  • Alina Ozhegova
  • Shamil Sharapudinov
  • Alexander Tarasov
  • Filipp Ushchev

Abstract

Our novel approach to modeling monopolistic competition with heterogeneous firms and consumers involves spatial product differentiation, in either a geographical space or a space of characteristics. In addition to price, each firm chooses location in space. We formulate conditions for positive sorting—more-productive firms serve larger market segments and face tougher competition—and for existence and uniqueness of equilibrium. To quantify the role of sorting, we calibrate the model using haircut market data and perform counterfactual analysis. Inequality in gains among consumers caused by positive market shocks can be substantial: gains for consumers at more-populated locations are three to four times higher. (JEL D11, D24, D43, L13, L84)

Suggested Citation

  • Sergey Kokovin & Alina Ozhegova & Shamil Sharapudinov & Alexander Tarasov & Filipp Ushchev, 2024. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," ULB Institutional Repository 2013/387736, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/387736
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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