Market structure and price setting: Imperfect competition in the final good sector
One solution to this problem is to use monopolistic competition (sometimes called the differentiated goods monopoly) in the final good sector.  For example, households might consume a continuum of final goods, each different, and aggregated with a constant elasticity of substitution utility function. This is the setting in the hugely influential Dixit and Stiglitz  (1977) paper. The approach of Dixit and Stiglitz is heavily used directly or as motivation in new Keynesian modeling because monopoly pricing power allows for sticky prices.