The Optimal Provision of Products with Income E¤ects

Discrete choice models have been used to describe imperfect competition between ...rms selling horizontally di¤erentiated products. In all theoretical models, the indirect utility function is assumed to be linear in income so that there is no income e¤ect. We consider here a situation in which income enters nonlinearly into the indirect utility function. We propose a correct (hicksian) measure of consumer surplus based on a willingness to pay principle. In order to grantee the existence of a price equilibrium, match values are assumed logconcavilly distributed. Using a correct measure of welfare, we extent the results of Anderson, de Palma and Nesterov to the case where income e¤ects are involved. We proof that under these general assumptions, overentry prevails. Our ...ndings, which extend the conventional discrete choice oligopoly approach provide various guidelines for empirical research.