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On Monopolistic Competition and Optimal Product Diversity: a Comment on Cost Structure and Workers' Rents

  • Pierre M. Picard
  • Eric Toulemonde

In the Dixit-Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that the cost structure and workers's rents can also explain excess entry.

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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 05.02.

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Length: 10 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:lau:crdeep:05.02
Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.20
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  1. PICARD, Pierre M. & TOULEMONDE, Eric, 2005. "On monopolistic competition and optimal product diversity: a comment on cost structure and workers' rents," CORE Discussion Papers 2005016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Benassy, Jean-Pascal, 1991. "Monopolistic competition," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 37, pages 1997-2045 Elsevier.
  4. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  5. Thierry Mayer & Keith Head, 2003. "The Empirics of Agglomeration and Trade," Working Papers 2003-15, CEPII research center.
  6. Gans, Joshua S., 1997. "Fixed cost assumptions in industrialisation theories," Economics Letters, Elsevier, vol. 56(1), pages 111-119, September.
  7. d'ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GÉRARD-VARET, L.-A., . "On the Dixit-Stiglitz model of monopolistic competition," CORE Discussion Papers RP 1211, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Gordon H. Hanson, 1998. "Market Potential, Increasing Returns, and Geographic Concentration," NBER Working Papers 6429, National Bureau of Economic Research, Inc.
  9. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  10. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
  11. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  12. d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "Unemployment in a Cournot oligopoly model with Ford effects," CORE Discussion Papers RP 858, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
  14. Gans, J.S., 1995. "Fixed Cost Assumptions," Papers 95/47, New South Wales - School of Economics.
  15. 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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