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Not so demanding: Preference structure, firm behavior, and welfare

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  • Peter Neary
  • Monika Mrazova

Abstract

We introduce two new tools for relating preferences and demand to firm behavior and economic performance. The "Demand Manifold" links the elasticity and convexity of an arbitrary demand function; the "Utility Manifold" links the elasticity and concavity of an arbitrary utility function. Along the way we present some new families of demand functions; show how the structure of demand and preferences determine the responses of monopoly firms and monopolistically competitive industries to exogenous shocks; characterize the efficiency of amonopolistically competitive equilibrium; and present a quantitative framework for predicting the welfare effects of exogenous shocks.

Suggested Citation

  • Peter Neary & Monika Mrazova, 2013. "Not so demanding: Preference structure, firm behavior, and welfare," Economics Series Working Papers 691, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:691
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    Cited by:

    1. Eckel, Carsten & Iacovone, Leonardo & Javorcik, Beata & Neary, J. Peter, 2015. "Multi-product firms at home and away: Cost- versus quality-based competence," Journal of International Economics, Elsevier, vol. 95(2), pages 216-232.
    2. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    3. Mark Kagan & Frederick Ploeg & Cees Withagen, 2015. "Battle for Climate and Scarcity Rents: Beyond the Linear-Quadratic Case," Dynamic Games and Applications, Springer, vol. 5(4), pages 493-522, December.
    4. Atkin, David & Donaldson, Dave, 2015. "Who’s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    5. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74, November.
    6. Reto Foellmi & Christian Hepenstrick & Zweimüller Josef, 2018. "International Arbitrage and the Extensive Margin of Trade between Rich and Poor Countries," Review of Economic Studies, Oxford University Press, vol. 85(1), pages 475-510.
    7. Marc J. Melitz, 2018. "Competitive effects of trade: theory and measurement," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 1-13, February.
    8. Gaudin, Germain & White, Alexander, 2014. "On the antitrust economics of the electronic books industry," DICE Discussion Papers 147 [rev.], Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Joachim Jarreau, 2014. "Terms-of-Trade Impacts of Trade Agreements and the Choice of Trade Policy," Working Papers halshs-01023214, HAL.
    10. Monika Mrázová & J. Peter Neary, 2017. "Not So Demanding: Demand Structure and Firm Behavior," American Economic Review, American Economic Association, vol. 107(12), pages 3835-3874, December.
    11. Araujo, Luis & Mion, Giordano & Ornelas, Emanuel, 2016. "Institutions and export dynamics," Journal of International Economics, Elsevier, vol. 98(C), pages 2-20.
    12. Igor A. Bykadorov & Alexey A. Gorn & Sergey G. Kokovin & Evgeny V. Zhelobodko, 2014. "Losses From Trade In Krugman’s Model: Almost Impossible," HSE Working papers WP BRP 61/EC/2014, National Research University Higher School of Economics.
    13. Nikita Malykhin & Philip Ushchev, 2016. "Clustering or Co-Agglomeration? A Love-for-Variety Approach," HSE Working papers WP BRP 140/EC/2016, National Research University Higher School of Economics.
    14. 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.
    15. Bykadorov, Igor & Kokovin, Sergey, 2017. "Can a larger market foster R&D under monopolistic competition with variable mark-ups?," Research in Economics, Elsevier, vol. 71(4), pages 663-674.
    16. Bykadorov, Igor & Gorn, Alexey & Kokovin, Sergey & Zhelobodko, Evgeny, 2015. "Why are losses from trade unlikely?," Economics Letters, Elsevier, vol. 129(C), pages 35-38.

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    More about this item

    Keywords

    Heterogeneous Firms; Quantifying Gains from Trade; Super- and Sub-Convexity; Supermodularity;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F15 - International Economics - - Trade - - - Economic Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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