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Input–output linkages and optimal product diversity

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  • Kichko, Sergey
Abstract
We derive a simple necessary and sufficient condition on preferences for the market outcome to be socially optimal under monopolistic competition with input–output (IO) linkages. Preferences that satisfy this condition are typically non-CES and display pro-competitive effects, although they converge to the CES when IO linkages become negligibly weak. We show that the equilibrium with pro-competitive effects may deliver both excess and insufficient entry of firms in equilibrium.

Suggested Citation

  • Kichko, Sergey, 2017. "Input–output linkages and optimal product diversity," Economics Letters, Elsevier, vol. 158(C), pages 58-61.
    • Handle: RePEc:eee:ecolet:v:158:y:2017:i:c:p:58-61
    DOI: 10.1016/j.econlet.2017.06.026
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
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    More about this item

    Keywords

    Input–output linkages; Optimum product diversity; Monopolistic competition; Pro-competitive effects;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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