We analyze a class of "large group" Chamberlinian monopolistic competition models using multiplicatively quasi-separable (MQS) and additively quasi-separable (AQS) functions. We first prove that the MQS and AQS functions are equivalent to the "constant relative risk aversion" (CRRA) and "constant absolute risk aversion" (CARA) classes of functions, respectively. Whereas both approaches allow for closed-form solutions, only the AQS functions yield profit-maximizing prices that decrease in the mass of competing firms. We then characterize the equilibrium in both cases and discuss some possible applications of the AQS framework to trade, growth, and development.
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number
2005033.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002.
"Agglomeration and Trade Revisited,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
[Downloadable!] (restricted)
Other versions:
OTTAVIANO, Gianmarco & TABUCHI, Takatoshi & THISSE, Jacques-Franois, 1999.
"Agglomeration and trade revisited,"
CORE Discussion Papers
1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
[Downloadable!]
Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999.
"Agglomeration and Trade Revisited,"
CIRJE F-Series
CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
[Downloadable!]