Substitutability and Competition in the Dixit-Stiglitz Model
AbstractThe effects of competition on growth are analyzed in the recent literature by comparing economies with the same market structure but different degrees of substitutability. In this note, we show that in a general equilibrium model with monopolistic competition à la Dixit- Stiglitz the effect of substitutability on the allocation of resources is independent of the associated change in competition. Higher substitutability increases welfare, output and productivity because resources shift towards the most productive sectors. However, since markups are equal across sectors, changes in market power do not affect the relative price of consumption goods, implying that the induced changes in market power do not have any direct effect on equilibrium allocations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1007.
Length: 8 pages
Date of creation: Feb 2004
Date of revision:
Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Other versions of this item:
- Winfried KOENIGER & Omar LICANDRO, 2004. "Substitutability and Competition in the Dixit-Stiglitz Model," Economics Working Papers ECO2004/05, European University Institute.
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Piercarlo Zanchettin & Vincenzo Denicolò, 2004. "Competition and Growth in Neo-Schumpeterian Models," Discussion Papers in Economics 04/28, Department of Economics, University of Leicester.
- Chad Syverson, 2004.
"Product Substitutability and Productivity Dispersion,"
The Review of Economics and Statistics,
MIT Press, vol. 86(2), pages 534-550, May.
- Chad Syverson, 2003. "Product Substitutability and Productivity Dispersion," NBER Working Papers 10049, National Bureau of Economic Research, Inc.
- Helge Sanner, 2004. "Economy vs. History: What Does Actually Determine the Distribution of Firms' Locations in Cities?," Volkswirtschaftliche DiskussionsbeitrÃ¤ge 67, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät, revised Sep 2004.
- José A. Herce, . "Could this ever happen in Spain? Economic and policy aspects of a SARS-like episode," Working Papers 2004-09, FEDEA.
- Helge Sanner, 2005. "Economy vs History - What Does Actually Determine the Distribution of Shops' Locations in Cities?," ERSA conference papers ersa05p175, European Regional Science Association.
- Malte Mosel, 2010. "Competition, Imitation, and R&D Productivity in a Growth Model with Sector-Specific Patent Protection," CESifo Working Paper Series 3109, CESifo Group Munich.
- Simon Sosvilla-Rivero & Pedro N. Rodríguez, . "Linkages in international stock markets: Evidence from a classification procedure," Working Papers 2004-23, FEDEA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).
If references are entirely missing, you can add them using this form.