Monopoly,product diversity and welfare |
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Authors: | David de Meza Thomas von Ungern-Sternberg |
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Institution: | London School of Economic, London WC2A 2AE, UK;University of Bonn, 5300 Bonn 1, West Germany |
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Abstract: | The more homogeneous its customers the easier it is for a monopolist to extract consumer surplus. Offering a range of product varieties (or spatial locations) sorts consumers into groups with similar preferences. The profit opportunities this yields may result in a monopoly providing more product choice than is socially optimal. Nevertheless, monopoly may be socially preferable to a free entry imperfectly competitive equilibrium. |
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