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Monopolistic Competition with Endogenous Specialization

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  • Martin L. Weitzman

Abstract

In the familiar spatial model of monopolistic competition on the circle, a product is identified by a single locational characteristic representing its brand or variety. The ability of a variety to compete with other varieties a given distance away (its "specialization" as quantified by transportation losses or how rapidly the "melting iceberg" melts) is exogenously given in the standard model. Here, specialization is a choice variable selected by the firm. A monopolistically competitive general equilibrium is derived, where the degree of specialization is endogenously determined along with other variables. Implications are noted. The central contribution is to show that the effect of endogenizing specialization is to make the Hotelling-Lancaster-Chamberlin model of monopolistic competition isomorphic to the analytically much more tractable Dixit-Stiglitz-Ethier formulation, without sacrificing the appealing concept of product "distance"

Suggested Citation

  • Martin L. Weitzman, 1994. "Monopolistic Competition with Endogenous Specialization," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 45-56.
  • Handle: RePEc:oup:restud:v:61:y:1994:i:1:p:45-56.
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    File URL: http://hdl.handle.net/10.2307/2297876
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    Cited by:

    1. Chad Syverson, 2001. "Output Market Segmentation and Productivity," Working Papers 01-07, Center for Economic Studies, U.S. Census Bureau.
    2. Horii, Ryo, 2012. "Wants and past knowledge: Growth cycles with emerging industries," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 220-238.
    3. Knaap, T., 1998. "A survey of complementaries in growth and location theories," Research Report 98C44, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    4. Kostas Axarloglou, 2008. "Product line extensions: causes and effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 9-21.
    5. Pietro Peretto & Sjak Smulders, 2002. "Technological Distance, Growth And Scale Effects," Economic Journal, Royal Economic Society, vol. 112(481), pages 603-624, July.
    6. Shiro Kuwahara & Akihisa Shibata, 2006. "The Role Of Expectations In A Specialization-Driven Growth Model With Endogenous Technology Choice," Division of Labor & Transaction Costs (DLTC), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 55-69.
    7. Shon M. Ferguson, 2015. "Endogenous Product Differentiation, Market Size and Prices," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 45-61, February.
    8. Ciccone, Antonio & Matsuyama, Kiminori, 1996. "Start-up costs and pecuniary externalities as barriers to economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 33-59, April.
    9. repec:dgr:rugsom:98c44 is not listed on IDEAS
    10. Hendel, Igal & de Figueiredo, John Neiva, 1997. "Product differentiation and endogenous disutility," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 63-79, November.
    11. Gans, Joshua S. & Hill, Robert J., 1997. "Measuring product diversity," Economics Letters, Elsevier, vol. 55(1), pages 145-150, August.
    12. Richard Walker, 2005. "Superstars and Renaissance Men: Specialization, Market Size and the Income Distribution," CEP Discussion Papers dp0707, Centre for Economic Performance, LSE.
    13. Heritiana Ranaivoson, 2005. "The economic analysis of product diversity," Cahiers de la Maison des Sciences Economiques r05083, Université Panthéon-Sorbonne (Paris 1).
    14. Edmond Baranes & Cuong Vuong, 2012. "Competition with asymmetric regulation of mobile termination charges," Journal of Regulatory Economics, Springer, vol. 42(2), pages 204-222, October.
    15. Walker, Richard, 2005. "Superstars and renaissance men: specialization, market size and the income distribution," LSE Research Online Documents on Economics 19880, London School of Economics and Political Science, LSE Library.

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