IDEAS home Printed from https://ideas.repec.org/a/oup/oxecpp/v47y1995i2p318-28.html
   My bibliography  Save this article

Monopolistic Competition with Firm-Specific Costs

Author

Listed:
  • Montagna, Catia

Abstract

This paper extends a Dixit-Stiglitz model of monopolistic competition to allow for technical heterogeneity amongst firms. The dispersion of firms' technical efficiency within the industry is generated by a random process and is shown to lead to a steady-state spectrum of profits and market shares. Market structure is endogenously determined and the existence of efficiency gaps and the uncertainty faced by potential entrants are identified as the factor limiting rational entry. Thus, entry is shown not to eliminate long-run profits and, contrary to the homogeneous firms case and consistent with empirical findings, the model yields a positive relationship between concentration and profitability. Copyright 1995 by Royal Economic Society.

Suggested Citation

  • Montagna, Catia, 1995. "Monopolistic Competition with Firm-Specific Costs," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 318-328, April.
  • Handle: RePEc:oup:oxecpp:v:47:y:1995:i:2:p:318-28
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0030-7653%28199504%292%3A47%3A2%3C318%3AMCWFC%3E2.0.CO%3B2-A&origin=bc
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carlstrom, Charles T. & Fuerst, Timothy S. & Ghironi, Fabio, 2006. "Does it matter (for equilibrium determinacy) what price index the central bank targets?," Journal of Economic Theory, Elsevier, vol. 128(1), pages 214-231, May.
    2. Nicoletta Batini & Paul Levine & Joseph Pearlman, 2003. "Indeterminacy with inflation-forecast-cased rules in a two-bloc model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    3. Leith, Campbell & Wren-Lewis, Simon, 2009. "Taylor rules in the open economy," European Economic Review, Elsevier, vol. 53(8), pages 971-995, November.
    4. Carlstrom, Charles T. & Fuerst, Timothy S., 2001. "Timing and real indeterminacy in monetary models," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 285-298, April.
    5. Benhabib, Jess & Eusepi, Stefano, 2005. "The design of monetary and fiscal policy: A global perspective," Journal of Economic Theory, Elsevier, vol. 123(1), pages 40-73, July.
    6. Stephen McKnight, 2011. "Should Central Banks Target Consumer or Producer Prices?," International Finance, Wiley Blackwell, vol. 14(3), pages 445-479, December.
    7. Kurozumi, Takushi & Van Zandweghe, Willem, 2008. "Investment, interest rate policy, and equilibrium stability," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1489-1516, May.
    8. Kurozumi, Takushi, 2006. "Determinacy and expectational stability of equilibrium in a monetary sticky-price model with Taylor rule," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 827-846, May.
    9. Huang, Kevin X.D. & Meng, Qinglai & Xue, Jianpo, 2009. "Is forward-looking inflation targeting destabilizing? The role of policy's response to current output under endogenous investment," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 409-430, February.
    10. Wang, Jian, 2010. "Home bias, exchange rate disconnect, and optimal exchange rate policy," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 55-78, February.
    11. Ludger Linnemann & Andreas Schabert, 2006. "Monetary Policy and the Taylor Principle in Open Economies," International Finance, Wiley Blackwell, vol. 9(3), pages 343-367, December.
    12. Sveen, Tommy & Weinke, Lutz, 2005. "New perspectives on capital, sticky prices, and the Taylor principle," Journal of Economic Theory, Elsevier, vol. 123(1), pages 21-39, July.
    13. Luis-Gonzalo Llosa & Vicente Tuesta, 2008. "Determinacy and Learnability of Monetary Policy Rules in Small Open Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1033-1063, August.
    14. James Bullard & Eric Schaling, 2009. "Monetary Policy, Determinacy, and Learnability in a Two-Block World Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(8), pages 1585-1612, December.
    15. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May.
    16. Stephen McKnight, 2007. "Investment and Interest Rate Policy in the Open Economy," Economic Analysis Research Group Working Papers earg-wp2007-11, Henley Business School, Reading University.
    17. De Fiore, Fiorella & Liu, Zheng, 2005. "Does trade openness matter for aggregate instability?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1165-1192, July.
    18. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erling Holmøy, 2003. "Aggregate Industry Behaviour in a Monopolistic Competition Model with Heterogeneous Firms," Discussion Papers 352, Statistics Norway, Research Department.
    2. Allanson, Paul & Montagna, Catia, 2005. "Multiproduct firms and market structure: An explorative application to the product life cycle," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 587-597, September.
    3. Ferdinand Rauch, 2008. "An explanation for the inverted-U relationship between competition and innovation," Vienna Economics Papers 0813, University of Vienna, Department of Economics.
    4. Sébastien Jean, 2002. "International Trade and Firms' Heterogeneity under Monopolistic Competition," Open Economies Review, Springer, pages 291-311.
    5. Montagna, Catia & Nocco, Antonella, 2008. "Labour Market Imperfections, International Integration and Selection," SIRE Discussion Papers 2008-21, Scottish Institute for Research in Economics (SIRE).
    6. Haiwen Zhou, 2010. "Oligopolistic Competition, Firm Heterogeneity, and the Impact of International Trade," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 36(1), pages 107-119.
    7. Erling Holmøy & Torbjørn Hægeland, 2000. "Aggregate Productivity and Heterogeneous Firms," Discussion Papers 266, Statistics Norway, Research Department.
    8. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    9. Jota Ishikawa & Yoshimasa Komoriya, 2010. "Stay Or Leave? Choice Of Plant Location With Cost Heterogeneity," The Japanese Economic Review, Japanese Economic Association, vol. 61(1), pages 97-115.
    10. Molana, Hassan & Montagna, Catia, 2000. "Market structure, cost asymmetries, and fiscal policy effectiveness," Economics Letters, Elsevier, vol. 68(1), pages 101-107, July.
    11. Dermot Leahy & Catia Montagna, 1998. "Targeted Strategic Trade Policy with Domestic Cost Heterogeneity," Dundee Discussion Papers in Economics 100, Economic Studies, University of Dundee.
    12. Erling Holmøy & Torbjørn Hægeland, 1997. "Aggregate Productivity Effects of Technology Shocks in a Model of Heterogeneous Firms: The Importance of Equilibrium Adjustments," Discussion Papers 198, Statistics Norway, Research Department.
    13. Matthieu Crozet & Lionel Fontagné, 2010. "L'internationalisation des entreprises : une analyse microéconomique de la mondialisation," Économie et Statistique, Programme National Persée, vol. 435(1), pages 3-12.
    14. repec:fec:journl:v:12:y:2017:i:4:p:660-676 is not listed on IDEAS
    15. Yu Chen & Haiwen Zhou, 2017. "An Overlapping-Generations Model of Firm Heterogeneity in Economic Development," Frontiers of Economics in China, Higher Education Press, vol. 12(4), pages 660-676, December.
    16. repec:eee:reecon:v:71:y:2017:i:4:p:645-649 is not listed on IDEAS
    17. Jang Ping Thia, 2008. "The Impact of Trade on Aggregate Productivity and Welfare with Heterogeneous Firms and Business Cycle Uncertainty," CEP Discussion Papers dp0883, Centre for Economic Performance, LSE.
    18. Mohamed Suleiman and Mahmoud Nabi, "undated". "Unemployment and Labor Market Institutions: Theory And Evidence From the GCC," API-Working Paper Series 0806, Arab Planning Institute - Kuwait, Information Center.
    19. Fraser Summerfield, 2016. "Matching Skill and Tasks: Cyclical Fluctuations in the Overqualification of New Hires," Working Paper series 16-08, Rimini Centre for Economic Analysis.
    20. repec:dun:dpaper:89 is not listed on IDEAS
    21. repec:eee:reecon:v:71:y:2017:i:4:p:718-728 is not listed on IDEAS

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:oxecpp:v:47:y:1995:i:2:p:318-28. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: https://academic.oup.com/oep .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.