Monopolistic competition: Critical evaluation the theory of monopolistic competition with specific reference to the seminal 1977 paper by Dixit and Stiglitz
This paper revisits the D-S (Dixit-Stiglitz) model. It’s a simple general monopolistic model with n monopolistic goods, and a numeraire good Labour ( w=1); aggregation for all goods in the economy. We have considered in our paper constant elasticity of substitution case(CES).On the supply side, the assumption is that the labour is perfectly mobile factor of production across the sectors, so as a result in our model there is single wage rate which we denote as in the other sectors than monopolistic there is constant returns to scale and we can specify the production function: The Dixit-Stiglitz model of monopolistic competition works only when n is large; from the functions of the productions best when one applies linear production function. Under increasing returns to scale monopolistic competition will lead to a greater degree of product differentiation than it is socially optimal.
|Date of creation:||29 Sep 2011|
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- Dixit, Avinash K & Stiglitz, Joseph E, 1993.
"Monopolistic Competition and Optimum Product Diversity: Reply,"
American Economic Review,
American Economic Association, vol. 83(1), pages 302-04, March.
- Dixit, Avinash K & Stiglitz, Joseph E, 1979. "Monopolistic Competition and Optimum Product Diversity: Reply," American Economic Review, American Economic Association, vol. 69(5), pages 961-63, December.
- Winfried Koeniger & Omar Licandro, . "Substitutability and Competition in the Dixit-Stiglitz Model," Working Papers 2004-06, FEDEA.
- Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
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