Product variety, price elasticity of demand and fixed cost in spatial models
Published:
Mar. 2009
Publisher:
RWI, Essen
This paper explores the implications of price-dependent demand in spatial models of product differentiation. We introduce consumers with a quasi-linear utility function in the framework of the Salop (1979) model. We show that the so-called excess...
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ifo Institut für Wirtschaftsforschung an der Universität München, Bibliothek
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This paper explores the implications of price-dependent demand in spatial models of product differentiation. We introduce consumers with a quasi-linear utility function in the framework of the Salop (1979) model. We show that the so-called excess entry theorem relies critically on the assumption of completely inelastic demand. Our model is able to produce excessive, insufficient, or optimal product variety. A proof for the existence and uniqueness of symmetric equilibrium when price elasticity of demand is increasing in price is also provided. -- Demand elasticity ; spatial models ; excess entry theorem
