Retailer Leadership under Monopolistic Competition

Abstract

Abstract: We investigate a modification of the Dixit–Stiglitz model supplemented by retailing;namely, we consider various situations of Stackelberg equilibrium under retailer leadership and thecondition of free entry of manufacturers to the market. For each of the situations, we providedetailed solutions considered taking into account the preferences of participants in the marketinteraction. This allows one to understand which of the considered situations are most beneficialto occur for retailer, manufacturers, and for society as a whole. Moreover, optimal taxation isconsidered. Situations are revealed when it is beneficial for the state to tax and when, on thecontrary, to subsidize the producer.