Joint discussion paper series in economics 2009,49
On the basis of a modification of K. Lancaster's characteristics approach and a special class of non-homothetic utility functions individual demand functions are derived. Individual demand is determined in a complex way by the income as well as the product qualities and the unit costs of the offered products. It becomes clear that product innovations (changes in product quality), process innovations (changes taxation and redistribution) all influence product variety in a very different way.
innovation income distribution product variety Lancaster's characteristics approach