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