Control in Social and Economic Systems

Product diversity in a vertical distribution channel under monopolistic competition

I. A. Bykadorov^a, S. G. Kokovin^a, E. V. Zhelobod'ko<sup>b

a</sup> Sobolev Institute of Mathematics Siberian Branch of RAS
^b Novosibirsk State University

Abstract: In Russia chain-stores gained a considerable market power. We combine a Dixit–Stiglitz industry with a monopolistic retailer. The questions addressed are: Does a 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.

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