On monopolistic competition and optimal product diversity: workers ’ rents also matter
AbstractIn the Dixit-Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that workers' rents also contribute to explain excess entry through a general equilibrium mechanism. Larger wages indeed raises the aggregate earnings and firms sales and profits, which entices too many firms to enter. We discuss the possibility of over-provision of varieties by comparing the equilibrium to unconstrained and constrained social optima and to other regulatory framework where wages are not controlled.
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 Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 08-09.
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: 162a avenue de la Faïencerie, L-1511 Luxembourg
Phone: (+352) 46 66 44
Fax: (+352) 46 66 44 ext 633
Web page: http://wwwen.uni.lu/research/fdef/crea
More information through EDIRC
Other versions of this item:
- Pierre M. Picard & Eric Toulemonde, 2009. "On monopolistic competition and optimal product diversity: workers' rents also matter," Canadian Journal of Economics, Canadian Economics Association, vol. 42(4), pages 1347-1360, November.
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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.:
- Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
- Picard, Pierre M. & Toulemonde, Eric, 2006.
"Firms agglomeration and unions,"
European Economic Review,
Elsevier, vol. 50(3), pages 669-694, April.
- Combes, Pierre-Philippe & Overman, Henry G., 2004.
"The spatial distribution of economic activities in the European Union,"
Handbook of Regional and Urban Economics,
in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 64, pages 2845-2909
- Pierre-Philippe Combes & Henry Overman, 2003. "The Spatial Distribution of Economic Activities in the European Union," CEP Discussion Papers dp0587, Centre for Economic Performance, LSE.
- ANDERSON, Simon P. & DE PALMA, André & NESTEROV, Yurii, 1994.
"Oligopolistic Competition and the Optimal Provision of Products,"
CORE Discussion Papers
1994034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November.
- 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.
- 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.
- Matsumura, Toshihiro & Okamura, Makoto, 2006. "A note on the excess entry theorem in spatial markets," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1071-1076, September.
- d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-29, June.
- d’ASPREMONT, Cl. & DOS SANTOS FERREIRA, R. & GERARD-VARET, L.-A., 1988. "Unemployment in a Cournot oligopoly model with Ford effects," CORE Discussion Papers 1988018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Matsumura, Toshihiro & Okamura, Makoto, 2006. "Equilibrium number of firms and economic welfare in a spatial price discrimination model," Economics Letters, Elsevier, vol. 90(3), pages 396-401, March.
- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisa Ferreira).
If references are entirely missing, you can add them using this form.