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Monopolistic Competition with GAS Preferences

Author

Listed:
  • Paolo Bertoletti

    (Department of Economics and Management, University of Pavia)

  • Federico Etro

    (Ca' Foscari University, University of Florence and C.R.A.)

Abstract

We study monopolistic competition equilibria with free entry under symmetric Generalized Additively Separable preferences, whose demand systems feature a single aggregator of prices or quantities. They include Gorman-Pollak preferences (which nest directly and indirectly additive preferences, a homothetic family and other preferences) and implicit CES preferences. With heterogeneous ?rms our extension of the Melitz model produces a variety of pricing and selection effects, and allows us to solve the social planner problem. We illustrate the inefficiency of the market equilibrium for a new speci?cation of generalized translated power preferences, and show its optimality for the entire class of implicit CES preferences.

Suggested Citation

  • Paolo Bertoletti & Federico Etro, 2018. "Monopolistic Competition with GAS Preferences," DEM Working Papers Series 165, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0165
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    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0165.pdf
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    Cited by:

    1. Macedoni, Luca & Weinberger, Ariel, 2022. "Quality heterogeneity and misallocation: The welfare benefits of raising your standards," Journal of International Economics, Elsevier, vol. 134(C).
    2. Paolo Bertoletti & Federico Etro & Ina Simonovska, 2018. "International Trade with Indirect Additivity," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 1-57, May.
    3. Paolo Bertoletti & Federico Etro, 2022. "Monopolistic competition, as you like it," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 293-319, January.
    4. Cavallari, Lilia & Etro, Federico, 2020. "Demand, markups and the business cycle," European Economic Review, Elsevier, vol. 127(C).
    5. Federico Etro, 2018. "Macroeconomics with Endogenous Markups and Optimal Taxation," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 378-406, October.
    6. Luca Macedoni & Ariel Weinberger, 2021. "Quality Misallocation, Trade, and Regulations," CESifo Working Paper Series 9041, CESifo.
    7. Etro, Federico, 2019. "Monopolistic competition for the market with heterogeneous firms," Economics Letters, Elsevier, vol. 179(C), pages 9-12.

    More about this item

    Keywords

    Monopolistic competition; GAS preferences; Heterogeneous fi?rms;
    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

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