Events

Dr. Thibault Fally
Associate Professor
University of California-Berkeley

This paper examines demand systems where the demand for a good depends on other
prices only through a common price aggregator (a scalar function of all prices). We refer
to this property as “generalized separability” and provide the functional forms of demand
that this property implies when demand is rational, i.e., derived from utility maximization.
Generalized separability imposes restrictions on either income or price effects, and greater
flexibility is obtained by adding indirect utility as an additional aggregator. We provide
examples and applications which encompass a large variety of examples from the literature.
In particular, generalized separability can be used in simple general-equilibrium models
to obtain a more tractable framework and yet generate a wider range of effects of market
size and productivity on firm size, entry, and prices.