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The Dixit-Stiglitz economy with a 'small group' of firms: A simple and robust equilibrium markup formula

Author

Listed:
  • Claude d'Aspremont
  • Rodolphe Dos Santos Ferreira

Abstract

In a general version of Dixit–Stiglitz two-sector economy, we present three variants of the concept of oligopolistic equilibrium in price-quantity pairs (d'Aspremont and Dos Santos Ferreira, 2016) integrating income feedback effects in three different ways. For the first two variants (Ford effects ignored or restricted to profits), a single and simple equilibrium markup formula is derived involving, for each firm, a conduct parameter indicating its degree of competitive toughness. Different specifications of these conduct parameters lead to different oligopolistic equilibria in prices and/or in quantities. In particular in the standard Dixit–Stiglitz economy, we show, that the first order conditions of a symmetric oligopolistic price equilibrium correspond to a unique degree of competitive toughness in the general markup formula, This degree is decreasing (and the markup increasing) as more feedback effects are taken into account by firms. On the contrary, for the third variant, introducing full Ford effects leads to lower markups and higher competitive toughness in the standard Dixit–Stiglitz economy and under conditions ensuring the equilibrium markup to remain in tne right interval.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Claude d'Aspremont & Rodolphe Dos Santos Ferreira, 2017. "The Dixit-Stiglitz economy with a 'small group' of firms: A simple and robust equilibrium markup formula," LIDAM Reprints CORE 2950, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2950
    Note: In : Research in Economics, 71, 729-739, 2017
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    Cited by:

    1. d’Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2020. "Exploiting separability in a multisectoral model of oligopolistic competition," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 51-59.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • 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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