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Monopolistic competition in general equilibrium: Beyond the CES

  • Evgeny Zhelobodko

    (NSU - Novosibirsk State University - Novosibirsk State University)

  • Sergey Kokovin

    (NSU - Novosibirsk State University - Novosibirsk State University, Sobolev Institute of Mathematics - Novosibirsk State University)

  • Mathieu Parenti

    (UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics)

  • Jacques-François Thisse

    (PSE - Paris School of Economics, CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CEPR - Centre for Economic Policy Research - Centre for Economic Policy Research, PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - École des Ponts ParisTech (ENPC) - CNRS - Centre National de la Recherche Scientifique)

We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium using the concept of Relative Love for Variety. When the RLV increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The CES is a borderline case. We extend our setting to heterogeneous firms and show that the cutoff cost decreases (increases) when the RLV increases (decreases). Last, we study how combining vertical, horizontal and cost heterogeneity affects our results.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00566431.

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Date of creation: Feb 2011
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Handle: RePEc:hal:psewpa:halshs-00566431
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  1. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
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