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Network structure, equilibrium and dynamics in a monopolistically competitive economy

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  • Tamás Sebestyén

    () (University of Pécs Faculty of Business and Economics)

  • Dóra Longauer

    () (University of Pécs Faculty of Business and Economics)

Abstract

Abstract Although network theory has been busy to emphasize the role of connection structures in shaping aggregate level phenomena of complex systems, there are only few attempts in economic modeling which try to build this dimension into the analysis. Macroeconomic models typically build on complete connectedness among economic actors (frictionless flow of information, perfect information on prices), thus these models typically oversee the possible effects of complex, incomplete network structures among economic agents on emergent macroeconomic phenomena. In this paper we try to fill this gap by incorporating possibly incomplete relationship structures between economic actors in a standard model of monopolistic competition and then analyze the effect of different network structures on the equilibrium and dynamic properties of the model. Analytical and simulation results of the model show that incomplete connectedness give rise to deadweight loss, shrinking output below the level observed in standard models with complete networks. Also, the dynamics of link formation has an effect on the steady state of the economy as well as on its response to shocks.

Suggested Citation

  • Tamás Sebestyén & Dóra Longauer, 2018. "Network structure, equilibrium and dynamics in a monopolistically competitive economy," Netnomics, Springer, vol. 19(3), pages 131-157, December.
  • Handle: RePEc:kap:netnom:v:19:y:2018:i:3:d:10.1007_s11066-018-9129-y
    DOI: 10.1007/s11066-018-9129-y
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    References listed on IDEAS

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