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Pricing to Market in the Krugman Model

Author

Listed:
  • Paolo Bertoletti

    (Department of Economics and Management, University of Pavia)

  • Federico Etro

    (Department of Economics, University of Venice Ca' Foscari)

Abstract

We examine the role of per capita income in closed and open economy models of monopolistic competition based on non-homothetic directly additive preferences a la Dixit-Stiglitz, as in Krugman (1979). In a closed economy with free entry income is always neutral on markups and firm size. In a two-country trade model without transport costs, markups are higher in the country with higher income if the elasticity of substitution is decreasing in consumption. Pricing to market also emerges with transport costs.

Suggested Citation

  • Paolo Bertoletti & Federico Etro, 2013. "Pricing to Market in the Krugman Model," DEM Working Papers Series 061, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0061
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    References listed on IDEAS

    as
    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
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    6. Pollak, Robert A, 1972. "Generalized Separability," Econometrica, Econometric Society, vol. 40(3), pages 431-453, May.
    7. Bertoletti, Paolo & Epifani, Paolo, 2014. "Monopolistic competition: CES redux?," Journal of International Economics, Elsevier, vol. 93(2), pages 227-238.
    8. Paolo Bertoletti & Federico Etro, 2017. "Monopolistic Competition when Income Matters," Economic Journal, Royal Economic Society, vol. 127(603), pages 1217-1243, August.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Pricing to market; Krugman model; Dixit-Stiglitz model;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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