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Monopolistic competition in general equilibrium: beyond the CES


  • ZHELOBODKO, Evgeny

    () (Novosibirsk State University, Russia)

  • KOKOVIN, Sergey

    () (Novosibirsk State University and Sobolev Institute of Mathematics, Russia)

  • PARENTI, Mathieu

    () (Université Paris 1 and PSE, France)

  • THISSE, Jean - François

    () (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; Paris School of Economics and CEPR)


We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium using the concept of Relative Love for Variety. When the RLV increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The CES is a borderline case. We extend our setting to heterogeneous firms and show that the cutoff cost decreases (increases) when the RLV increases (decreases). Last, we study how combining vertical, horizontal and cost heterogeneity affects our results.

Suggested Citation

  • ZHELOBODKO, Evgeny & KOKOVIN, Sergey & PARENTI, Mathieu & THISSE, Jean - François, 2011. "Monopolistic competition in general equilibrium: beyond the CES," CORE Discussion Papers 2011010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2011010

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    References listed on IDEAS

    1. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
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    Cited by:

    1. Igor Bykadorov & Andrea Ellero & Stefania Funari & Sergey Kokovin & Pavel Molchanov, 2016. "Painful Birth of Trade Under Classical Monopolistic Competition," HSE Working papers WP BRP 132/EC/2016, National Research University Higher School of Economics.
    2. Lu, Yi & Tao, Zhigang & Yu, Linhui, 2011. "Agglomeration and Markup," MPRA Paper 38974, University Library of Munich, Germany, revised May 2012.
    3. Claudia Steinwender, 2015. "The Roles of Import Competition and Export Opportunities for Technical Change," CEP Discussion Papers dp1334, Centre for Economic Performance, LSE.
    4. Costas Arkolakis & Arnaud Costinot & Dave Donaldson & Andrés Rodríguez-Clare, 2015. "The Elusive Pro-Competitive Effects of Trade," NBER Working Papers 21370, National Bureau of Economic Research, Inc.
    5. Paolo Bertoletti & Federico Etro, 2014. "Pricing to market in the Krugman model," Economics Bulletin, AccessEcon, vol. 34(1), pages 459-468.
    6. Zhelobodko, E. & Sidorov, A. & Thisse, J.-F., 2013. "Monopolistic Competition vs Oligopoly in the "Large Economy": How Much Is Difference?," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 10-26.
    7. Igor A. Bykadorov & Alexey A. Gorn & Sergey G. Kokovin & Evgeny V. Zhelobodko, 2014. "Losses From Trade In Krugman’s Model: Almost Impossible," HSE Working papers WP BRP 61/EC/2014, National Research University Higher School of Economics.
    8. Parenti, Mathieu & Sidorov, Alexander & Thisse, Jacques-François, 2014. "Revisiting Cournot and Bertrand in the presence of income effects," MPRA Paper 69641, University Library of Munich, Germany.
    9. Steinwender, Claudia, 2015. "The roles of import competition and export opportunities for technical change," LSE Research Online Documents on Economics 61154, London School of Economics and Political Science, LSE Library.
    10. Mathieu Parenti & Alexander V. Sidorov & Jacques-François Thisse & Evgeny V. Zhelobodko, 2017. "Cournot, Bertrand or Chamberlin: Toward a reconciliation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(1), pages 29-45, March.
    11. Robert C. Feenstra, 2014. "Restoring the Product Variety and Pro-competitive Gains from Trade with Heterogeneous Firms and Bounded Productivity," NBER Working Papers 19833, National Bureau of Economic Research, Inc.
    12. Yoshitsugu Kanemoto, 2012. "Cost-Benefit Analysis in Monopolistic Competition Models of Urban Agglomeration," GRIPS Discussion Papers 12-04, National Graduate Institute for Policy Studies.
    13. Vladimir Matveenkov, 2012. "Structure of Equilibria in a Model of Endogenous Growth with Horizontal Innovations," DEGIT Conference Papers c017_051, DEGIT, Dynamics, Economic Growth, and International Trade.

    More about this item


    monopolistic competition; additive preferences; love for variety; heterogeneous firms;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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