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Distorted monopolistic competition

Author

Listed:
  • Behrens, Kristian
  • Mion, Giordano
  • Murata, Yasusada
  • Suedekum, Jens

Abstract

We characterize the equilibrium and optimal resource allocations in a general equilibrium model of monopolistic competition with multiple asymmetric sectors and heterogeneous firms. We first derive general results for additively separable preferences and general productivity distributions, and then analyze specific examples that allow for closed-form solutions and a simple quantification procedure. Using data for France and the United Kingdom, we find that the aggregate welfare distortion -- due to inefficient labour allocation and firm entry between sectors and inefficient selection and output within sectors -- is equivalent to the contribution of 6- 8% of the total labour input.

Suggested Citation

  • Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2016. "Distorted monopolistic competition," LSE Research Online Documents on Economics 69034, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:69034
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    References listed on IDEAS

    as
    1. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    2. Antonella Nocco & Gianmarco I. P. Ottaviano & Matteo Salto, 2014. "Monopolistic Competition and Optimum Product Selection," American Economic Review, American Economic Association, vol. 104(5), pages 304-309, May.
    3. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    4. Colin J. Hottman & Stephen J. Redding & David E. Weinstein, 2016. "Quantifying the Sources of Firm Heterogeneity," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1291-1364.
    5. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    6. 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.
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    Citations

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    Cited by:

    1. Jacques-François Thisse & Philip Ushchev, 2018. "Monopolistic competition without apology," Chapters,in: Handbook of Game Theory and Industrial Organization, Volume I, chapter 5, pages 93-136 Edward Elgar Publishing.
    2. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    3. Bonnet, Céline & Schain, Jan Philip, 2017. "An empirical analysis of mergers: Efficiency gains and impact on consumer prices," DICE Discussion Papers 244, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    4. Stef Proost & Jacques-Francois Thisse, 2017. "What Can Be Learned from Spatial Economics?," HSE Working papers WP BRP 167/EC/2017, National Research University Higher School of Economics.
    5. repec:eee:reecon:v:71:y:2017:i:4:p:645-649 is not listed on IDEAS
    6. repec:eee:reecon:v:71:y:2017:i:4:p:663-674 is not listed on IDEAS

    More about this item

    Keywords

    monopolistic competition; welfare distortion; intersectoral distortions; intrasectoral distortions;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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