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Monopolistic Competition with Endogenous Specialization


  • Martin L. Weitzman


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," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 45-56.
  • Handle: RePEc:oup:restud:v:61:y:1994:i:1:p:45-56.

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    Cited by:

    1. 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.
    2. Kostas Axarloglou, 2008. "Product line extensions: causes and effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 9-21.
    3. Shon M. Ferguson, 2015. "Endogenous Product Differentiation, Market Size and Prices," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 45-61, February.
    4. 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.
    5. Gans, Joshua S. & Hill, Robert J., 1997. "Measuring product diversity," Economics Letters, Elsevier, vol. 55(1), pages 145-150, August.
    6. Heritiana Ranaivoson, 2005. "The economic analysis of product diversity," Cahiers de la Maison des Sciences Economiques r05083, Université Panthéon-Sorbonne (Paris 1).
    7. Haiwen Zhou, 2004. "The division of labor and the extent of the market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 195-209, July.
    8. Chad Syverson, 2001. "Output Market Segmentation and Productivity," Working Papers 01-07, Center for Economic Studies, U.S. Census Bureau.
    9. González-Maestre, Miguel & Granero, Lluís M., 2018. "Competition with targeted product design: Price, variety, and welfare," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 406-428.
    10. 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).
    11. Pietro Peretto & Sjak Smulders, 2002. "Technological Distance, Growth And Scale Effects," Economic Journal, Royal Economic Society, vol. 112(481), pages 603-624, July.
    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. Espen R. Moen & Fredrik Wulfsberg & Øyvind Aas, 2020. "Price Dispersion and the Role of Stores," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(3), pages 1181-1206, July.
    14. Roberto Cazzolla Gatti & Roger Koppl & Brian D. Fath & Stuart Kauffman & Wim Hordijk & Robert E. Ulanowicz, 2020. "On the emergence of ecological and economic niches," Journal of Bioeconomics, Springer, vol. 22(2), pages 99-127, July.
    15. 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.
    16. 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.
    17. 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.
    18. repec:dgr:rugsom:98c44 is not listed on IDEAS
    19. 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.
    20. Nakayama, Yuji & 中山, 雄司 & ナカヤマ, ユウジ, 2001. "Spatial Competition and Accumulation of Public Capital," Discussion Paper 34, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    21. Heritiana Ranaivoson, 2005. "The economic analysis of product diversity," Post-Print halshs-00197137, HAL.
    22. González-Maestre, Miguel & Granero, Lluís M., 2020. "Excessive vs. insufficient entry in spatial models: When product design and market size matter," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 27-35.
    23. Oriol Valles Codina, 2020. "Economic Production as Life: A Classical Approach to Computational Social Science," Working Papers 2001, New School for Social Research, Department of Economics.
    24. Burak Dindaroglu, 2023. "Product design in monopolistic competition," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 471-488, September.

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