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Value of an Additional Firm in Monopolistic Competition

Michael Sattinger

University at Albany, State University of New York

The paper develops a model of monopolistic competition in which the satisfaction levels consumers get from products are independently and identically distributed. Potential substitution among products then generates demand curves through the mechanism of order statistics. The value of extra variety can be calculated directly. Pareto, lognormal and beta distributions are investigated using numerical integration. Some but not all cases support the argument that the optimal number of firms exceeds the equilibrium number.

DOI

10.2307/2297695

Volume

51 (2)

Pages

321

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