| This study develops an alternative approach to consumer theory to deal with issues that arise from the diversity of consumers. The presence of heterogeneous consumers in the market introduces a distinction between "average," "marginal" and "inframarginal" consumers, and brings up the possibility of consumer self-selection and of substitution at the aggregate level. These issues are not adequately analyzed in terms of the "representative consumer" approach. In this dissertation, models of heterogeneous consumers are developed using the tools and concepts from statistical theory. The distribution function of personal valuations is used to characterize market demand, and the conditional distribution is used to analyze the phenomenon of self-selection. Comparative statics results with respect to a change in degree of heterogeneity are also derived. For example, it is shown that an increase in the variance of the distribution of valuations, which increase the number of people with extreme tastes, will increase the gains from trade. Models of heterogeneous consumers are also applied to problems such as the determination of optimal product quality, the practice of commodity bundling, and non-price methods of rationing. The implications of consumer self-selection and the effects of changes in degree of consumer heterogeneity are emphasized throughout the discussion. |
