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Generalized Comparative Statics under Monopolistic Competition:Anti-competitive Paradox, Immiserizing Growth, Catastrophes

  • Kokovin Sergey

    ()

  • Zhelobodko Evgeniy

    ()

Several common wisdoms of economic geography and trade theories rely on specific technical assumptions, notably, CES utilities. Krugman’s (1979) general approach to monopolistic competition avoid this limitation, but has too narrow use. We expand it now to a family of multisector models and to additional effects of comparative statics. It turnes out that under market growth the price for varieties can go up or down, depending upon Arrow- Pratt measure of concavity of the utility function, does it decrease or increase. Welfare and number of firms also can increase or decrease. There can be asymmetric equilibria, multiple equilibria and related catastrophic shocks.

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Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 09/09e.

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Date of creation: 06 Nov 2009
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Handle: RePEc:eer:wpalle:09/09e
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  1. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 1999. "Agglomeration and trade revisited," CORE Discussion Papers 1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  5. Yongmin Chen & Scott J. Savage, 2007. "The Effects Of Competition On The Price For Cable Modem Internet Access," Working Papers 07-13, NET Institute.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  7. Jeffrey R. Campbell & Hugo A. Hopenhayn, 2003. "Market size matters," Working Paper Series WP-03-12, Federal Reserve Bank of Chicago.
  8. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  9. 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.
  10. Das, Satya P, 1982. "Economies of Scale, Imperfect Competition, and the Pattern of Trade," Economic Journal, Royal Economic Society, vol. 92(367), pages 684-93, September.
  11. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  12. F. J. Anderson, 1991. "Trade, Firm Size, and Product Variety under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 12-20, February.
  13. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
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