FEEM Seminar on “Taste Heterogeneity, Elasticity of Demand and Growth”
The paper presented formalizes Chamberlin’s idea that monopoly power depends on the heterogeneity of taste of customers. Jan Witajewski, FEEM junior researcher, demonstrates that elasticity of substitution between goods in the Dixit-Stiglitz framework can be represented as a simple linear function of taste heterogeneity measure. This result can enrich interpretation of a broad range of models that use Constant Elasticity of Substitution production function: if predictions of these models depend on the elasticity of substitution, they might depend also on heterogeneity of taste of consumers.
Fondazione Eni Enrico Mattei