A Market with a Social Consumption Externality

22 Pages Posted: 4 Sep 2005

See all articles by James W. Friedman

James W. Friedman

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Isabel Grilo

Catholic University of Louvain

Abstract

We model a spatial market in which the utility of each consumer is affected by the consumers who buy precisely the same product. The marginal contribution of consumers x's purchase on consumer y depends on |x-y|, which declines as |x-y| increases. Such modelling of preferences fits goods that signal a consumer's place in society - clothing styles, automobiles and jewellry are examples. For 2n + 1 firms we find the unique symmetric equilibrium and derive comparative statics on the optimal number of firms, the largest number of firms the market can support, and the behaviour of profits per firm as n increases.

Suggested Citation

Friedman, James W. and Grilo, Isabel, A Market with a Social Consumption Externality. Japanese Economic Review, Vol. 56, No. 3, pp. 251-272, September 2005, Available at SSRN: https://ssrn.com/abstract=785433

James W. Friedman (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

Isabel Grilo

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium
010 47 43 60 (Phone)

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