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Not so demanding: Preference structure, firm behavior, and welfare

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  • Peter Neary
  • Monika Mrazova

Abstract

We introduce two new tools for relating preferences and demand to firm behavior and economic performance. The "Demand Manifold" links the elasticity and convexity of an arbitrary demand function; the "Utility Manifold" links the elasticity and concavity of an arbitrary utility function. Along the way we present some new families of demand functions; show how the structure of demand and preferences determine the responses of monopoly firms and monopolistically competitive industries to exogenous shocks; characterize the efficiency of amonopolistically competitive equilibrium; and present a quantitative framework for predicting the welfare effects of exogenous shocks.

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  • Peter Neary & Monika Mrazova, 2013. "Not so demanding: Preference structure, firm behavior, and welfare," Economics Series Working Papers 691, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:691
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    Cited by:

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    2. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    3. Donaldson, Dave & Atkin, David, 2015. "Who?s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    4. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74.
    5. Marc J. Melitz, 2018. "Competitive effects of trade: theory and measurement," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 1-13, February.
    6. Gaudin, Germain & White, Alexander, 2014. "On the antitrust economics of the electronic books industry," DICE Discussion Papers 147, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Reto Foellmi & Christian Hepenstrick & Zweimüller Josef, 2018. "International Arbitrage and the Extensive Margin of Trade between Rich and Poor Countries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 475-510.
    8. Mark Kagan & Frederick Ploeg & Cees Withagen, 2015. "Battle for Climate and Scarcity Rents: Beyond the Linear-Quadratic Case," Dynamic Games and Applications, Springer, vol. 5(4), pages 493-522, December.
    9. Monika Mrázová & J. Peter Neary, 2017. "Not So Demanding: Demand Structure and Firm Behavior," American Economic Review, American Economic Association, vol. 107(12), pages 3835-3874, December.
    10. Igor A. Bykadorov & Alexey A. Gorn & Sergey G. Kokovin & Evgeny V. Zhelobodko, 2014. "Losses From Trade In Krugman’s Model: Almost Impossible," HSE Working papers WP BRP 61/EC/2014, National Research University Higher School of Economics.
    11. Joachim Jarreau, 2014. "Terms-of-Trade Impacts of Trade Agreements and the Choice of Trade Policy," AMSE Working Papers 1430, Aix-Marseille School of Economics, France, revised 11 Jul 2014.
    12. Araujo, Luis & Mion, Giordano & Ornelas, Emanuel, 2016. "Institutions and export dynamics," Journal of International Economics, Elsevier, vol. 98(C), pages 2-20.
    13. Swati Dhingra & John Morrow, 2019. "Monopolistic Competition and Optimum Product Diversity under Firm Heterogeneity," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 196-232.
    14. Egger, Peter Hannes & Egger, Peter, 2016. "Heterogeneous Effects of Tariff and Nontariff Policy Barriers in General Equilibrium," VfS Annual Conference 2016 (Augsburg): Demographic Change 145675, Verein für Socialpolitik / German Economic Association.
    15. Nikita Malykhin & Philip Ushchev, 2016. "Clustering or Co-Agglomeration? A Love-for-Variety Approach," HSE Working papers WP BRP 140/EC/2016, National Research University Higher School of Economics.
    16. Bykadorov, Igor & Kokovin, Sergey, 2017. "Can a larger market foster R&D under monopolistic competition with variable mark-ups?," Research in Economics, Elsevier, vol. 71(4), pages 663-674.
    17. Bykadorov, Igor & Gorn, Alexey & Kokovin, Sergey & Zhelobodko, Evgeny, 2015. "Why are losses from trade unlikely?," Economics Letters, Elsevier, vol. 129(C), pages 35-38.
    18. Fally, Thibault, 2022. "Generalized separability and integrability: Consumer demand with a price aggregator," Journal of Economic Theory, Elsevier, vol. 203(C).

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    More about this item

    Keywords

    Heterogeneous Firms; Quantifying Gains from Trade; Super- and Sub-Convexity; Supermodularity;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F15 - International Economics - - Trade - - - Economic Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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