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Monopolistic Competition with Firm-Specific Costs

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  • Montagna, Catia

Abstract

This paper extends a Dixit-Stiglitz model of monopolistic competition to allow for technical heterogeneity amongst firms. The dispersion of firms' technical efficiency within the industry is generated by a random process and is shown to lead to a steady-state spectrum of profits and market shares. Market structure is endogenously determined and the existence of efficiency gaps and the uncertainty faced by potential entrants are identified as the factor limiting rational entry. Thus, entry is shown not to eliminate long-run profits and, contrary to the homogeneous firms case and consistent with empirical findings, the model yields a positive relationship between concentration and profitability. Copyright 1995 by Royal Economic Society.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 47 (1995)
Issue (Month): 2 (April)
Pages: 318-28

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Handle: RePEc:oup:oxecpp:v:47:y:1995:i:2:p:318-28

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Cited by:
  1. Sébastien Jean, 2000. "International Trade and Firms’ Heterogeneity Under Monopolistic Competition," Working Papers 2000-13, CEPII research center.
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  3. Hassan Molana & Catia Montagna, 1998. "Market Structure, Cost Asymmetries and Fiscal Policy Effectiveness," Dundee Discussion Papers in Economics 089, Economic Studies, University of Dundee.
  4. Mohamed Suleiman and Mahmoud Nabi, . "Unemployment and Labor Market Institutions: Theory And Evidence From the GCC," API-Working Paper Series 0806, Arab Planning Institute - Kuwait, Information Center.
  5. Allanson, Paul & Montagna, Catia, 2005. "Multiproduct firms and market structure: An explorative application to the product life cycle," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 587-597, September.
  6. Erling Holmøy & Torbjørn Hægeland, 1997. "Aggregate Productivity Effects of Technology Shocks in a Model of Heterogeneous Firms: The Importance of Equilibrium Adjustments," Discussion Papers 198, Research Department of Statistics Norway.
  7. Catia Montagna & Antonella Nocco, 2008. "Labour Market Imperfections, International Integration and Selection," Dundee Discussion Papers in Economics 212, Economic Studies, University of Dundee.
  8. Lionel Fontagné & Matthieu Crozet, 2010. "L'internationalisation des entreprises : une analyse microéconomique de la mondialisation," Économie et Statistique, Programme National Persée, vol. 435(1), pages 3-12.
  9. Ferdinand Rauch, 2008. "An explanation for the inverted-U relationship between competition and innovation," Vienna Economics Papers 0813, University of Vienna, Department of Economics.
  10. Erling Holmøy & Torbjørn Hægeland, 2000. "Aggregate Productivity and Heterogeneous Firms," Discussion Papers 266, Research Department of Statistics Norway.
  11. Marco Alderighi & Claudio A. Piga, 2008. "The Circular City with Heterogenous Firms," Working Paper Series 16-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  12. Dermot Leahy & Catia Montagna, 1998. "Targeted Strategic Trade Policy with Domestic Cost Heterogeneity," Dundee Discussion Papers in Economics 100, Economic Studies, University of Dundee.
  13. Jang Ping Thia, 2008. "The Impact of Trade on Aggregate Productivity and Welfare with Heterogeneous Firms and Business Cycle Uncertainty," CEP Discussion Papers dp0883, Centre for Economic Performance, LSE.
  14. Erling Holmøy, 2003. "Aggregate Industry Behaviour in a Monopolistic Competition Model with Heterogeneous Firms," Discussion Papers 352, Research Department of Statistics Norway.

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