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Monopolistic Competition with GAS Preferences

Author

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  • Paolo Bertoletti
  • Federico Etro

Abstract

We study monopolistic competition equilibria with free entry and social planner solutions under symmetric Generalized Additively Separable preferences (that encompass known cases such as additive, homothetic, translog and other preferences). This setting can jointly produce competition and selection effects of entry, incomplete pass-through of cost changes and pricing to market. We characterize the inefficiencies of the market equilibrium under Gorman-Pollak preferences and show its optimality under implicit CES preferences. We propose a new specification of generalized translated power preferences for trade and macroeconomic applications.

Suggested Citation

  • Paolo Bertoletti & Federico Etro, 2019. "Monopolistic Competition with GAS Preferences," Working Papers - Economics wp2019_17.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    • Handle: RePEc:frz:wpaper:wp2019_17.rdf
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    Cited by:

    1. Macedoni, Luca & Weinberger, Ariel, 2022. "Quality heterogeneity and misallocation: The welfare benefits of raising your standards," Journal of International Economics, Elsevier, vol. 134(C).
    2. Paolo Bertoletti & Federico Etro & Ina Simonovska, 2018. "International Trade with Indirect Additivity," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 1-57, May.
    3. Paolo Bertoletti & Federico Etro, 2022. "Monopolistic competition, as you like it," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 293-319, January.
    4. Cavallari, Lilia & Etro, Federico, 2020. "Demand, markups and the business cycle," European Economic Review, Elsevier, vol. 127(C).
    5. Federico Etro, 2018. "Macroeconomics with Endogenous Markups and Optimal Taxation," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 378-406, October.
    6. Luca Macedoni & Ariel Weinberger, 2021. "Quality Misallocation, Trade, and Regulations," CESifo Working Paper Series 9041, CESifo.
    7. Etro, Federico, 2019. "Monopolistic competition for the market with heterogeneous firms," Economics Letters, Elsevier, vol. 179(C), pages 9-12.

    More about this item

    Keywords

    Monopolistic competition; GAS preferences; Heterogeneous firms;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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