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Monopolistic competition under uncertainty

Author

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  • Shapoval Aleksander
  • Goncharenko Vasiliy

Abstract

Inspired by advances in general equilibrium modelling with monopolistic competition were-consider the problem of the choice of firms under uncertainty, explore it in the framework of general equilibrium modelling, and develop a theory of monopolistic competition under demand uncertainty. We distinguish between two cases of uncertainty. In the first case the uncertainty disappears by the moment of trade and the output but not the prices are chosen under uncertainty. Then the uncertainty is established not to affect the equilibrium. The trade under uncertainty, considered in the second case, causes market imperfetions. The supply is bigger (smaller) than the expected demand when the goods are good (bad) substitutes. In contrast to previous study, we show that uncertainty affects basically the prices and demand, but not the output.

Suggested Citation

  • Shapoval Aleksander & Goncharenko Vasiliy, 2014. "Monopolistic competition under uncertainty," EERC Working Paper Series 14/02e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:14/02e
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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