COMPETITIVE RESPONSE TO RADICAL PRODUCT INNOVATIONS The competitive case serves as a baseline, but it is not a realistic description of choice
in the presence of peer group externalities. I next consider a market with ten equally-sized
districts, a degree of Tiebout choice that, as is discussed below in Section 1.4, corresponds
roughly to the 80th percentile U.S. metropolitan area. Assume that J = 10 , n = N 10 , and
μ j = , j = 1,K,10 . Panel C of Figure 1.1 displays the unique, perfectly sorted
equilibrium when δ = 0 . Families in the j th decile of the income...