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Monopolistic Competition: Beyond the CES

  • Kokovin, Sergey
  • Thisse, Jacques-François
  • Zhelobodko, Evgeny

We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium based on an Arrow-Pratt measure of concavity of the utility, interpreted as the relative love for variety. When the relative love for variety increases with the consumption level, the market displays standard competitive effects. On the contrary, when it decreases, the equilibrium price increases with the number of firms and the market size, while the CES is the borderline case. Finally, we apply our setting to trade theory and uncover several new properties hindered by the CES, such as dumping and reverse dumping.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7947.

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Date of creation: Aug 2010
Date of revision:
Handle: RePEc:cpr:ceprdp:7947
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  1. Michael B. Ward & Jay P. Shimshack & Jeffrey M. Perloff & J. Michael Harris, 2002. "Effects of the Private-Label Invasion in Food Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 961-973.
  2. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
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  5. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
  6. Rabah Amir, 2000. "On the Effects of Entry in Cournot Markets," Econometric Society World Congress 2000 Contributed Papers 1475, Econometric Society.
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  8. Bertoletti, Paolo & Epifani, Paolo, 2014. "Monopolistic competition: CES redux?," Journal of International Economics, Elsevier, vol. 93(2), pages 227-238.
  9. Jeffrey R. Campbell & Hugo A. Hopenhayn, 2002. "Market Size Matters," NBER Working Papers 9113, National Bureau of Economic Research, Inc.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  11. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, 07.
  12. Feenstra, Robert C., 2003. "A homothetic utility function for monopolistic competition models, without constant price elasticity," Economics Letters, Elsevier, vol. 78(1), pages 79-86, January.
  13. Julien Martin, 2009. "Spatial Price Discrimination in International Markets," Working Papers 2009-21, CEPII research center.
  14. repec:oup:qjecon:v:121:y:2006:i:2:p:541-585 is not listed on IDEAS
  15. Behrens, Kristian & Murata, Yasusada, 2007. "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 776-787, September.
  16. Harald Badinger, 2007. "Has the EU's Single Market Programme Fostered Competition? Testing for a Decrease in Mark-up Ratios in EU Industries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(4), pages 497-519, 08.
  17. Martin, Julien, 2012. "Markups, quality, and transport costs," European Economic Review, Elsevier, vol. 56(4), pages 777-791.
  18. Yongmin Chen & Michael H. Riordan, 2008. "Price-increasing competition," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1042-1058.
  19. repec:oup:restud:v:67:y:2000:i:2:p:235-54 is not listed on IDEAS
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