Consumer Preferences in Monopolistic Competition Models
This paper develops a novel approach to modeling references in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the e¤ects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of �rms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.
|Date of creation:||Apr 2010|
|Contact details of provider:|| Postal: Ludwigstr. 28, 80539 Munich, Germany|
Web page: http://www.vwl.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David L. Hummels & Volodymyr Lugovskyy, 2008.
"International pricing in a generalized model of ideal variety,"
Board of Governors of the Federal Reserve System (U.S.).
- David Hummels & Volodymyr Lugovskyy, 2009. "International Pricing in a Generalized Model of Ideal Variety," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 3-33, 02.
- Perloff, Jeffrey M & Salop, Steven, 1984.
"Equilibrium with product differentiation,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
- Verhoogen, Eric, 2007.
"Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector,"
IZA Discussion Papers
2913, Institute for the Study of Labor (IZA).
- Verhoogen, Eric A, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," CEPR Discussion Papers 6385, C.E.P.R. Discussion Papers.
- Foellmi, Reto & Zweimüller, Josef, 2005.
"Income Distribution and Demand-Induced Innovations,"
CEPR Discussion Papers
4985, C.E.P.R. Discussion Papers.
- Reto Foellmi & Josef Zweimuller, 2006. "Income Distribution and Demand-Induced Innovations," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 941-960.
- Reto Foellmi & Josef Zweimï¿½ller, "undated". "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005.
"Market Size, Trade, and Productivity,"
Development Working Papers
201, Centro Studi Luca d'Agliano, University of Milano.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
- Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
- Tarasov Alexander, 2009.
"Income Distribution, Market Structure, and Individual Welfare,"
The B.E. Journal of Theoretical Economics,
De Gruyter, vol. 9(1), pages 1-39, December.
- Tarasov, Alexander, 2007. "Income Distribution, Market Structure, and Individual Welfare," MPRA Paper 7682, University Library of Munich, Germany, revised Jan 2008.
- Tarasov, Alexander, 2009. "Income distribution, market structure, and individual welfare," Munich Reprints in Economics 19578, University of Munich, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- 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.
- van den Berg, Gerard J, 2005.
"On the Uniqueness of Optimal Prices Set by Monopolistic Sellers,"
CEPR Discussion Papers
5166, C.E.P.R. Discussion Papers.
- van den Berg, Gerard J., 2007. "On the uniqueness of optimal prices set by monopolistic sellers," Journal of Econometrics, Elsevier, vol. 141(2), pages 482-491, December.
- Philip Sauré, 2012.
"Bounded Love of Variety and Patterns of Trade,"
Open Economies Review,
Springer, vol. 23(4), pages 645-674, September.
- Ina Simonovska, 2010.
"Income differences and prices of tradables,"
Globalization and Monetary Policy Institute Working Paper
55, Federal Reserve Bank of Dallas.
When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:11489. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.