School of Economics

2005 Discussion Papers

School of Economics Discussion Paper 05/08
October 2005

Taste for Variety and Optimum Product Diversity in an Open Economy
Javier Coto-Martínez, María del Carmen García-Alonso, Paul Levine

School of Economics
University of Kent at Canterbury

Abstract

We extend the Benassy (1996) 'taste for variety' model to an open economy setting. With the Benassy effect, the market equilibrium is inefficient, openness reduces the varieties provided in the unconstrained optimum and there are potential gains from international coordination.

JEL Classification: D43; F12

Keywords: Taste for variety; monopolistic competition; Benassy effect; open economy

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