Oligopolistic Competition and the Optimal Provision of Products

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Abstract
This paper considers the theory of market versus optimal product diversity in the light of two recent advances in oligopoly theory. The first is the development of discrete choice models to describe heterogeneous consumer tastes, and the application of such models to oligopolistic competition. The second advance is the proof that logconcavity of the consumer taste density guarantees the existence of a price equilibrium. Our main result is that logconcavity implies excessive product variety. This result extends to price-sensitive individual conditional demands, and calls into question previous results in the literature which left open the possibility of insufficient variety.
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