Monopolistic Competition: CES Redux?
AbstractWe investigate competitive, selection and reallocation effects in monopolistic competition trade models. We argue that departing from CES preferences in an otherwise standard Dixit-Stiglitz setup with additive preferences seems to involve implausible assumptions about consumer behavior and inconsistent competitive effects. In the presence of trade costs, selection effects à la Melitz (2003) are instead generally robust to the assumptions about preferences. However, they are unambiguously associated to aggregate productivity gains only when preferences are CES. We also study competitive effects in alternative monopolistic competition settings featuring non-additive preferences, strategic interaction and consumers’ preference for an ideal variety. We find that none of the these setups delivers a compelling pro-competitive mechanism. Overall, our results suggest that in monopolistic competition, consistent with CES preferences, larger markets select more aggressively on productivity rather than forcing firms to move down their average cost curves.
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 University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 004.
Length: 38 pages
Date of creation: Oct 2012
Date of revision:
Monopolistic Competition; CES Preferences; International Trade; Competitive; Selection and Reallocation Effects.;
Find related papers by JEL classification:
- F1 - International Economics - - Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-COM-2012-11-11 (Industrial Competition)
- NEP-IND-2012-11-11 (Industrial Organization)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- repec:hal:wpaper:halshs-00566431 is not listed on IDEAS
- Kokovin, Sergey & Thisse, Jacques-François & Zhelobodko, Evgeny, 2010. "Monopolistic Competition: Beyond the CES," CEPR Discussion Papers 7947, C.E.P.R. Discussion Papers.
- Mrázová, Monika & Neary, J Peter, 2013.
"Selection Effects With Heterogeneous Firms,"
CEPR Discussion Papers
9288, C.E.P.R. Discussion Papers.
- Monika Mrázová & J. Peter Neary, 2012. "Selection Effects with Heterogeneous Firms," CEP Discussion Papers dp1174, Centre for Economic Performance, LSE.
- Peter Neary & Monika Mrazova, 2011. "Selection Effects with Heterogeneous Firms," Economics Series Working Papers 588, University of Oxford, Department of Economics.
- Bogliacino, F & Rampa, G, 2009.
"Monopolistic Competition and New Products: A Conjectural Equilibrium Approach,"
15120, University Library of Munich, Germany.
- Francesco Bogliacino & Giorgio Rampa, 2010. "Monopolistic competition and new products: a conjectural equilibrium approach," Journal of Economic Interaction and Coordination, Springer, vol. 5(1), pages 55-76, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alice Albonico).
If references are entirely missing, you can add them using this form.