Variety and size regulation in discrete choice oligopoly

Imperfectly competitive markets for a differentiated product may underprovide brand variety when consumer tastes for brands are highly heterogeneous. We show that, when the brands in question are indivisible in consumption and each consumer buys a customized quantity (or size) of the preferred brand only, a welfare improvement can be obtained by regulating the size of purchase. We study 'neutral size regulation' which requires that the size of purchase be set equal to the size that would prevail in the absence of regulation. This improves brand variety and consumer surplus, provided consumer tastes are sufficiently heterogeneous.