Continuous Spatial Monopolistic Competition: Matching Goods With Consumers

38 Pages Posted: 24 Aug 2017

See all articles by Maxim Goryunov

Maxim Goryunov

National Research University Higher School of Economics

Sergey Kokovin

National Research University Higher School of Economics

Takatoshi Tabuchi

University of Tokyo - Faculty of Economics

Date Written: August 22, 2017

Abstract

Our new approach enriches the general additive monopolistic competition model (AMCM) - with a space of product characteristics: consumers' "ideal varieties". Unlike Hotelling, such partially localized competition involves intersecting zones of service among (continuously distributed) producers. Then, the uniform equilibrium firms' density increases with growing population, as with the usual AMCM. However, now increasing/decreasing prices are determined by the increasing/decreasing elasticity of elementary utility (instead of demand elasticity in AMCM). A new characteristic - the firm's range of service - decreases. Such finer matching between buyers and sellers becomes a new source of welfare gain from a thicker market, unlike the variety benefit in AMCM. The free-entry competition remains socially excessive under some natural preferences.

Keywords: monopolistic competition, spatial competition, optimal product diversity, gains from trade, finer matching

JEL Classification: L11, L13

Suggested Citation

Goryunov, Maxim and Kokovin, Sergey and Tabuchi, Takatoshi, Continuous Spatial Monopolistic Competition: Matching Goods With Consumers (August 22, 2017). Higher School of Economics Research Paper No. WP BRP 173/EC/2017, Available at SSRN: https://ssrn.com/abstract=3023845 or http://dx.doi.org/10.2139/ssrn.3023845

Maxim Goryunov

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Sergey Kokovin (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Takatoshi Tabuchi

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan
+81 3 5841 5603 (Phone)
+81 3 5841 5521 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
42
Abstract Views
911
PlumX Metrics