Monopolistic Competition Between Differentiated Products with Demand for More Than One Variety

48 Pages Posted: 3 Apr 2009  

Andrei Hagiu

Massachusetts Institute of Technology - Sloan School of Management

Date Written: July 15, 2006

Abstract

We analyze the existence of pure strategy symmetric price equilibria in a generalized version of Salop (1979)'s circular model of competition between differentiated products - namely, we allow consumers to purchase more than one brand. When consumers purchase all varieties from which they derive non-negative net utility, there is no competition, so that each firm behaves like an unconstrained monopolist. When each consumers is interested in purchasing an exogenously given number (n) of varieties, we show that there is no pure strategy symmetric price equilibrium in general (for n > 2 with linear transportation costs). In turn, if the limitation on the number of varieties consumers purchase comes from a budget constraint then we obtain a multiplicity of symmetric price equilibria, which can be indexed by the number of varieties consumers purchase in equilibrium.

Keywords: Monopolistic competition, Product Variety.

JEL Classification: L1, L2, L8

Suggested Citation

Hagiu, Andrei, Monopolistic Competition Between Differentiated Products with Demand for More Than One Variety (July 15, 2006). Harvard Business School Strategy Unit Working Paper No. 09-095. Available at SSRN: https://ssrn.com/abstract=1372751 or http://dx.doi.org/10.2139/ssrn.1372751

Andrei Hagiu (Contact Author)

Massachusetts Institute of Technology - Sloan School of Management ( email )

MIT Sloan School of Management
100 Main Street, E62-313
Cambridge, MA 02142
United States
617-715-4844 (Phone)

HOME PAGE: http://andreihagiu.com/

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