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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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011010.

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Date of creation: 01 Feb 2011
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Handle: RePEc:cor:louvco:2011010
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