The product-variety externality and the business-stealing externality are both spillover benefits of new firms entering a monopolistically competitive market.

Question

Quizplus · Accepted Answer

The product-variety externality is a spillover benefit because it increases the diversity of products available to consumers. However, the business-stealing externality is a spillover cost, as it refers to new entrants taking away sales from existing firms, potentially reducing their market share and profits.

The Product-Variety Externality and the Business-Stealing Externality Are Both Spillover