TASTE FOR VARIETY AND OPTIMUM PRODUCTION PATTERNS IN MONOPOLISTIC COMPETITION

Many positive and normative results in models using the monopolistic c ompetition framework of the Dixit-Stiglitz-Spence type depend on the v alue of an important parameter, the 'taste for variety'. In these mode ls, however, the taste for variety is linked in a close but arbitrary manner to the degree of market power of monopolistic competitors. In t his paper we make a simple modification to the basic model, which clea rly disentangles taste for variety and market power. We then show how this changes the usual comparisons between social optimum and market o utcomes.