Monopolistic competition and income dispersion |
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Authors: | Alexander Osharin,Jacques-Franç ois Thisse,Philip Ushchev,Valery Verbus |
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Affiliation: | 1. National Research University Higher School of Economics, Nizhniy Novgorod, Russia;2. CORE-UCLouvain, Belgium;3. CEPR, United Kingdom;4. National Research University Higher School of Economics, Moscow, Russia |
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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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Keywords: | D43 L11 L13 |
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