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Private and public incentive to reduce seasonality: a simple theoretical model

Cellini, Roberto and Rizzo, Giuseppe (2010): Private and public incentive to reduce seasonality: a simple theoretical model.

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Abstract

This paper presents a theoretical model to investigate the incentive of private producer and policy-maker to reduce seasonality in a given market, where consumers derive different utilities from the consumption of the good in different seasons. The (seasonal) product differentiation is modeled along the lines of the contributions of Gabszewicz and Thisse (1979) and Shaked and Sutton (1982). We take into consideration that investments are possible to reduce the degree of seasonality. We show that, for a wide set of parameter configuration, the policy maker finds it optimal to make more effort to reduce seasonality as compared to private producers. The theoretical conclusion is consistent with empirical and anecdotical evidence, especially in the field of tourism markets.

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