PRODUCT DIFFERENTIATION AND REPRESENTATIVE AGENT IMPORT DEMAND SYSTEMS - A RECONSIDERATION AND RECONCILIATION

摘要

Product differentiation is the fundamental assumption employed to supposedly generate the import demand systems found in the literature. This paper shows that the assumption of product differentiation does not generate the import demand systems found in the literature, unless two additional assumptions are made. A procedure is demonstrated for testing these assumptions. By showing and exploiting the formal relationship between the ''old'' theory of demand and the ''new'' (Lancaster) theory of demand, the results are applicable to any demand system.