Consumer Preferences in Monopolistic Competition Models
AbstractThis paper develops a novel approach to modeling preferences in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the effects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of firms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 19990.
Date of creation: Nov 2009
Date of revision:
firm prices; intensity of competition; consumer income.;
Other versions of this item:
- Tarasov, Alexander, 2010. "Consumer Preferences in Monopolistic Competition Models," Discussion Papers in Economics 11489, University of Munich, Department of Economics.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
- NEP-COM-2010-01-23 (Industrial Competition)
- NEP-IND-2010-01-23 (Industrial Organization)
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