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Monopolistic competition and income dispersion

Author

Listed:
  • 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)

Abstract
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.

Suggested Citation

  • OSHARIN, Alexander & THISSE, Jacques-François & USHCHEV, Philip & VERBUS, Valery, 2013. "Monopolistic competition and income dispersion," LIDAM Discussion Papers CORE 2013071, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2013071
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    References listed on IDEAS

    as
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    Cited by:

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    2. Maxim Goryunov & Sergey Kokovin & Takatoshi Tabuchi, 2022. "Continuous spatial monopolistic competition: matching goods with consumers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(3), pages 793-832, October.
    3. Fontagné, Lionel & Secchi, Angelo & Tomasi, Chiara, 2018. "Exporters’ product vectors across markets," European Economic Review, Elsevier, vol. 110(C), pages 150-180.
    4. Corrado Benassi & Alessandra Chirco & Caterina Colombo, 2019. "Vertical differentiation beyond the uniform distribution," Journal of Economics, Springer, vol. 126(3), pages 221-248, April.
    5. Ushchev, Philip & Zenou, Yves, 2018. "Price competition in product variety networks," Games and Economic Behavior, Elsevier, vol. 110(C), pages 226-247.
    6. Nikita Malykhin & Philip Ushchev, 2016. "Clustering or Co-Agglomeration? A Love-for-Variety Approach," HSE Working papers WP BRP 140/EC/2016, National Research University Higher School of Economics.
    7. Sergey Kokovin & Alina Ozhegova & Shamil Sharapudinov & Alexander Tarasov & Philip Ushchev, 2024. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," American Economic Journal: Microeconomics, American Economic Association, vol. 16(2), pages 354-384, May.
    8. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    9. 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.
    10. Luca Fontanelli, 2023. "Theories of Market Selection: A Survey," GREDEG Working Papers 2023-08, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    11. Malykhin, Nikita & Ushchev, Philip, 2018. "How market interactions shape the city structure," Regional Science and Urban Economics, Elsevier, vol. 71(C), pages 122-136.
    12. Chrysovalantis Amountzias, 2024. "Market power and income disparities: How can firms influence the gap between capital and labor earnings," Bulletin of Economic Research, Wiley Blackwell, vol. 76(3), pages 861-888, July.
    13. Alexander Osharin & Valery Verbus, 2018. "Heterogeneity of consumer preferences and trade patterns in a monopolistically competitive setting," Journal of Economics, Springer, vol. 125(3), pages 211-237, November.
    14. A. Shapoval & V. M. Goncharenko, 2020. "Industry equilibrium and welfare in monopolistic competition under uncertainty," Journal of Economics, Springer, vol. 130(2), pages 187-218, July.
    15. Alexander Osharin & Valery Verbus, 2016. "Heterogeneous consumers and trade patterns in a monopolistically competitive setting," HSE Working papers WP BRP 131/EC/2016, National Research University Higher School of Economics.
    16. Jacques-Francois Thisse & Philip Ushchev, 2016. "When Can A Demand System Be Described By A Multinomial Logit With Income Effect?," HSE Working papers WP BRP 139/EC/2016, National Research University Higher School of Economics.

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    More about this item

    Keywords

    heterogenous consumers; income redistribution; toughness of competition; monopolistic competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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