We introduce non-homothetic preferences in the Dixit-Stiglitz model of monopolistic competition, and enquire about the espects of a change in income dispersion on the firms’ optimal decisions and market equilibrium. Income dispersion, modelled as a mean preserving spread, is shown to aspect only the degree of product disperentiation under the standard hypothesis on the firms’ decision making process, while it generates a positive co-movement of demand and demand elasticity, when the negligibility assumption is re-moved and the price index e¤ect is taken into account.
A Model of Monopolistic Competition with Personal Income Dispersion
COLOMBO, Caterina
2005
Abstract
We introduce non-homothetic preferences in the Dixit-Stiglitz model of monopolistic competition, and enquire about the espects of a change in income dispersion on the firms’ optimal decisions and market equilibrium. Income dispersion, modelled as a mean preserving spread, is shown to aspect only the degree of product disperentiation under the standard hypothesis on the firms’ decision making process, while it generates a positive co-movement of demand and demand elasticity, when the negligibility assumption is re-moved and the price index e¤ect is taken into account.File in questo prodotto:
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