Monopolistic competition and income dispersion

Osharin, Alexander;Thisse, Jacques-François;Ushchev, Philip;Verbus, Valery
(2014) Economics Letters — Vol. 122, n° 2, p. 348-352 (2014)

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Authors
  • Osharin, AlexanderNational Research University Higher School of Economics, Nizhniy Novgorod
    Author
  • Thisse, Jacques-FrançoisUCLouvain
    Author
  • Ushchev, PhilipNational Research University Higher School of Economics, Moscow
    Author
  • Verbus, ValeryNational Research University Higher School of Economics, Nizhniy Novgorod
    Author
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.
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Osharin, A., Thisse, J.-F., Ushchev, P., & Verbus, V. (2014). Monopolistic competition and income dispersion. Economics Letters, 122(2), 348-352. https://doi.org/10.1016/j.econlet.2013.12.029 (Original work published 2014)