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Efficient policy with firm heterogeneity and variable markups

Author

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  • Atsushi Tadokoro

    (Graduate School of Economics, Osaka University)

Abstract

This study analyzes policy instruments to make the market outcome achieve the e?cient outcome in a model of monopolistic competition with ?rm heterogeneity and variable markups. In this model, ?rm heterogeneity and the markup pricing create distortions in the market equilibrium. Ad valorem and per-unit production taxes/subsidies work di?erently to improve these distortions. I show that by combining an ad valorem production tax and a per-unit production subsidy, these distortions are removed without adopting a ?rm-speci?c tax/subsidy.

Suggested Citation

  • Atsushi Tadokoro, 2021. "Efficient policy with firm heterogeneity and variable markups," Discussion Papers in Economics and Business 20-17, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2017
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    File URL: http://www2.econ.osaka-u.ac.jp/econ_society/dp/2017.pdf
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    References listed on IDEAS

    as
    1. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    2. Nocco, Antonella & Ottaviano, Gianmarco I.P. & Salto, Matteo, 2019. "Geography, competition, and optimal multilateral trade policy," Journal of International Economics, Elsevier, vol. 120(C), pages 145-161.
    3. Antonella Nocco & Gianmarco I. P. Ottaviano & Matteo Salto, 2014. "Monopolistic Competition and Optimum Product Selection," American Economic Review, American Economic Association, vol. 104(5), pages 304-309, May.
    4. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    5. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    6. Swati Dhingra & John Morrow, 2019. "Monopolistic Competition and Optimum Product Diversity under Firm Heterogeneity," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 196-232.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Variable markups; Misallocation; Firm heterogeneity; Monopolistic competition;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • F1 - International Economics - - Trade
    • L0 - Industrial Organization - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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