Monopolistic Competition and Product Diversity: Review and Extension
32 Pages Posted: 4 Oct 2012
Date Written: December 2012
The modeling of monopolistic competition has contributed to rapid developments in numerous fields of economics, notably macroeconomics, international trade, industrial organization, economic growth and economic geography. This paper provides a systematic review and some extensions of various path‐breaking models of monopolistic competition and their subsequent developments, including the works of Spence, Dixit and Stiglitz that are based on the ‘love‐of‐variety’ approach, the works of Lancaster that are based on the ‘love‐of‐characteristic’ approach, and the large‐group monopolistic competition models of Hart, among others. The paper also examines the properties of some utility functions frequently used in the literature on models of monopolistic competition. Perhaps owing to the complexity of these models, the literature lacks a broad and systematic coverage of this essential subject. The paper aims to help fill the gap.
Keywords: Love‐of‐variety and love‐of‐characteristic models, Monopolistic competition, Product diversity
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