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Monopolistic Competition in General Equilibrium: Beyond the CES

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Author Info

  • Evgeny Zhelobodko

    (Novosibirsk State University, Russia)

  • Sergey Kokovin

    (Novosibirsk State University (Russia) and Sobolev Institute of Mathematics (Russia))

  • Mathieu Parenti

    (Université de Paris 1 and PSE, France)

  • Jacques-François Thisse

    (CORE, Université catholique de Louvain (Belgium), Université du Luxembourg (Luxembourg), CEPR (UK), and RIEB, Kobe University (Japan))

Abstract

We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium using the concept of Relative Love for Variety. When the RLV increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The CES is a borderline case. We extend our setting to heterogeneous firms and show that the cutoff cost decreases (increases) when the RLV increases (decreases). Last, we study how combining vertical, horizontal and cost heterogeneity affects our results.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2011-16.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2011-16.

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Length: 41 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:kob:dpaper:dp2011-16

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Keywords: Monopolistic competition; Additive preferences; Love for variety; Heterogeneous firms;

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Cited by:
  1. Lu, Yi & Tao, Zhigang & Yu, Linhui, 2011. "Agglomeration and Markup," MPRA Paper 38974, University Library of Munich, Germany, revised May 2012.
  2. Zhelobodko, E. & Sidorov, A. & Thisse, J.-F., 2013. "Monopolistic Competition vs Oligopoly in the "Large Economy": How Much Is Difference?," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 10-26.
  3. Yoshitsugu Kanemoto, 2012. "Cost-Benefit Analysis in Monopolistic Competition Models of Urban Agglomeration," GRIPS Discussion Papers 12-04, National Graduate Institute for Policy Studies.
  4. Robert C. Feenstra, 2014. "Restoring the Product Variety and Pro-competitive Gains from Trade with Heterogeneous Firms and Bounded Productivity," NBER Working Papers 19833, National Bureau of Economic Research, Inc.

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