A modification of the Dixit-Stiglitz model, supplemented by retailing, is investigated, namely, various situations of equilibrium according to Stackelberg are considered under the leadership of the retailer and the free entry condition of manufacturers to the market. For each of the situations, detailed solutions were provided, which were considered taking into account the preferences of the participants in the market interaction. This allows us to understand the occurrence of which of the considered situations is most beneficial for the retailer, manufacturers and for society as a whole. Moreover, optimal taxation is considered. Situations are revealed when it is beneficial for the state to tax the producer, and when, on the contrary, to subsidize the producer.
We study the monopolistic competition model with producer-retailer-consumers two-level interaction. The industry is organized according to the Dixit–Stiglitz model. The retailer is the only monopolist. A quadratic utility function represents consumer preferences. We consider the case of the retailer's leadership; namely, we study two types of behavior: with and without the free entry condition. Earlier, we obtained the result: to increase social welfare and/or consumer surplus, the government needs to subsidize (not tax!) retailers. In the presented paper, we develop these results for the situation when the producer imposes an entrance fee for retailers.
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