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dc.contributor.authorAmir, Rabah
dc.contributor.authorEricksonz, Philip
dc.contributor.authorJin, Jim Yongtao
dc.identifier.citationAmir , R , Ericksonz , P & Jin , J Y 2015 ' On the microeconomic foundations of linear demand for diferentiated products ' School of Economics & Finance Discussion Paper , no. 1507 , University of St Andrews , St Andrews , pp. 1-32 .en
dc.identifier.otherPURE: 227166527
dc.identifier.otherPURE UUID: c7c0b223-05ce-42e4-85e1-1ff1a5897455
dc.description.abstractThis paper provides a thorough exploration of the microeconomic foundations for the multivariate linear demand function for di¤erentiated products that is widely used in industrial organization. A key finding is that strict concavity of the quadratic utility function is critical for the demand system to be well defined. Otherwise, the true demand function may be quite complex: Multi-valued, non-linear and income-dependent. The solution of the first order conditions for the consumer problem, which we call a local demand function, may have quite pathological properties. We uncover failures of duality relationships between substitute products and complementary products, as well as the incompatibility between high levels of complementarity and concavity. The two-good case emerges as a special case with strong but non-robust properties. A key implication is that all conclusions derived via the use of linear demand that does not satisfy the law of Demand ought to be regarded with some suspiscion.
dc.publisherUniversity of St Andrews
dc.relation.ispartofseriesSchool of Economics & Finance Discussion Paperen
dc.rightsCopyright (c) 2015 the authorsen
dc.subjectLinear demanden
dc.subjectRepresentative consumeren
dc.subjectLaw of Demanden
dc.subjectHB Economic Theoryen
dc.titleOn the microeconomic foundations of linear demand for diferentiated productsen
dc.typeWorking or discussion paperen
dc.contributor.institutionUniversity of St Andrews. School of Economics and Financeen

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