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Horizontal Differentiation and Economic Growth under Non–Homotheticity

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  • Alberto BUCCI

    ()

  • Vladimir MATVEENKO

    ()

Abstract

In the original Romer (1990)’s model, as well as in its numerous subsequent extensions, a homothetic production function of the CES/CRRA type is postulated for the final good sector. The aim of the present paper is to relax this restriction in order to study an extended and more general version of that model. In this regard, we describe the production behavior of the representative firm operating in the final output sector by means of a broader class of symmetric, additively separable production functions, not necessarily homothetic. This approach allows us to unveil the differences between price decreasing and price increasing competition when analyzing the impact of markups on economic growth. Such differences cannot be disclosed under the more traditional hypothesis of CES/CRRA production function.

Suggested Citation

  • Alberto BUCCI & Vladimir MATVEENKO, 2015. "Horizontal Differentiation and Economic Growth under Non–Homotheticity," Departmental Working Papers 2015-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2015-24
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous growth; Horizontal differentiation; Non–homothetic production functions; Variable elasticity of substitution; Price–increasing and Price–decreasing competition;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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