On the microeconomic foundations of linear demand for differentiated products

• 成果类型: Article
• 署名作者: Amir, Rabah; Erickson, Philip; Jin, Jim
• 署名单位: University of Iowa; University of St Andrews
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2017.03.005
• 发表日期: 2017
• 页码: 641-665
• 关键词: Linear demand; gross substitutes; Gross complements; Edgeworth complements; Representative consumer; Law of demand

摘要

This paper provides a thorough exploration of the microeconomic foundations for the multi-variate linear demand function for differentiated products, which is widely used in industrial organization. The setting is the standard representative consumer with a quasi-linear utility function. A key finding is that strict concavity of the quadratic utility function is critical for the demand system to be well defined. Otherwise, the true demand function may be quite complex: Multi-valued, non-linear and income-dependent. We uncover failures of duality relationships between substitute products and complementary products, as well as the incompatibility between high levels of complementarity and concavity. The two-good case emerges as a special case with strong but non-robust properties. A key implication is that all conclusions derived in applied economic models via the use of linear demand that does not satisfy the Law of Demand ought to be regarded with some suspicion. (C) 2017 Elsevier Inc. All rights reserved.