Preferences and Equilibrium in Monopoly and Duopoly
This paper takes the new approach of using a copula to characterize consumer; preferences in a discrete choice model of product differentiation, and applies; it to the economics of monopoly and duopoly. The comparative statics of demand; strength and preference diversity, both properties of the marginal distribution of values; for each product variety, are strikingly similar across market structures. Preference; dependence, a property of the copula and an indicator of product differentiation,; is a key determinant of whether prices are higher in multiproduct industries compared; to single-product monopoly. Furthermore, the effects of preference on prices and profits; influence equilibrium product selection. Remarkably, a horizontally-differentiated; duopoly sometimes can foreclose a higher-quality monopoly to the detriment of consumer; and social welfare.