Abstract
We critically assess the representative consumer with quadratic aggregate utility function which forms the foundation of a well-known class of linear oligopoly demand structures. It is argued that this approach is problematic and redundant. Regarding the latter, we show how the same demand system can be derived directly from a population of heterogeneous buyers for any number of products. Welfare analyses based on aggregate demand is shown to be sensitive to the underlying microfoundation.
| Original language | English |
|---|---|
| Pages (from-to) | 1-15 |
| Number of pages | 15 |
| Journal | B E Journal of Theoretical Economics |
| Volume | 22 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 19 Jan 2022 |
JEL classifications
- b40 - Economic Methodology: General
- l10 - Market Structure, Firm Strategy, and Market Performance: General
Keywords
- microfoundations
- oligopoly theory
- product differentiation
- representative consumer models
- QUANTITY COMPETITION
- PRICE