Aggregation in a model of price competition (Q1976439)

This paper provides a proof for the existence of an equilibrium in a model of differentiated oligopoly in which a finite number of firms compete in prices for consumers. The literature has derived the existence results by imposing conditions on the functional form of individual demand functions. The contribution of this paper is to establish the existence theorem by replacing the functional form assumption on individual demand with the assumption of the heterogeneous population. Specifically, the paper introduces a second homogeneous good, and it assumes that the consumers have heterogeneous preferences between the differentiated good and the homogeneous good. The paper considers global competition, but the results can be extended to the case where competition is local. In addition to the existence result, the paper derives a sufficient condition for the dominance solvability under which comparative analysis for the model is possible.