Monopolistic competition: Critical evaluation the theory of monopolistic competition with specific reference to the seminal 1977 paper by Dixit and Stiglitz
AbstractThis paper revisits the D-S (Dixit-Stiglitz) model. It’s a simple general monopolistic model with n monopolistic goods, and a numeraire good Labour ( w=1); aggregation for all goods in the economy. We have considered in our paper constant elasticity of substitution case(CES).On the supply side, the assumption is that the labour is perfectly mobile factor of production across the sectors, so as a result in our model there is single wage rate which we denote as in the other sectors than monopolistic there is constant returns to scale and we can specify the production function: The Dixit-Stiglitz model of monopolistic competition works only when n is large; from the functions of the productions best when one applies linear production function. Under increasing returns to scale monopolistic competition will lead to a greater degree of product differentiation than it is socially optimal.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 33802.
Date of creation: 29 Sep 2011
Date of revision:
Monopolistic competition; CES; Dixit-Stiglitz model; product differentiation;
Find related papers by JEL classification:
- B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
- 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-2011-10-09 (All new papers)
- NEP-COM-2011-10-09 (Industrial Competition)
- NEP-IND-2011-10-09 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
- Dixit, Avinash K & Stiglitz, Joseph E, 1993.
"Monopolistic Competition and Optimum Product Diversity: Reply,"
American Economic Review,
American Economic Association, vol. 83(1), pages 302-04, March.
- Dixit, Avinash K & Stiglitz, Joseph E, 1979. "Monopolistic Competition and Optimum Product Diversity: Reply," American Economic Review, American Economic Association, vol. 69(5), pages 961-63, December.
- Koeniger, Winfried & Licandro, Omar, 2004.
"Substitutability and Competition in the Dixit-Stiglitz Model,"
IZA Discussion Papers
1007, Institute for the Study of Labor (IZA).
- Winfried Koeniger & Omar Licandro, . "Substitutability and Competition in the Dixit-Stiglitz Model," Working Papers 2004-06, FEDEA.
- Winfried KOENIGER & Omar LICANDRO, 2004. "Substitutability and Competition in the Dixit-Stiglitz Model," Economics Working Papers ECO2004/05, European University Institute.
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