Product Diversity in a Vertical Distribution Channel under Monopolistic Competition

Igor Bykadorov^ab, Sergey Kokovin^ab, Evgeny Zhelobodko<sup>b

a</sup> Sobolev Institute of Mathematics, Siberian Branch of the Russian Academy of Sciences, Acad. Koptyug avenue 4, Novosibirsk, 630090, Russia
^b Novosibirsk State University, Pirogova str. 2, Novosibirsk, 630090, Russia

Abstract: In Russia the chain-stores gained a considerable market power. In the paper we combine a Dixit–Stiglitz industry with a monopolistic retailer. The questions addressed are: Does the retailer always deteriorate welfare, prices and variety of goods? Which market structure is worse: Nash or Stackelberg behavior? What should be the public policy in this area?

Keywords: monopolistic competition, Dixit–Stiglitz model, retailer, Nash equilibrium, Stackelberg equilibrium, social welfare, Pigouvian taxation.

Language: English