Aggregate Industry Behaviour in a Monopolistic Competition Model with Heterogeneous Firms
The paper analyses how a tractable representation of productivity heterogeneity among firms modifies the standard Dixit-Stiglitz (DS) model of monopolistic competition. The properties of the asymmetric model are explored by comparative statics analysis. The equilibrium adjustments of industry aggregates, such as the number of firms, output and the productivity of variable inputs are compared with the corresponding adjustments in the symmetric model. The analysis thereby clarifies when and why the standard DS model may provide a misleading picture of the aggregate industry behaviour. A by-product of the paper is to demonstrate that a more realistic description of a basic aspect of technology heterogeneity can be taken into account at a relatively low cost in terms of reduced tractability.
|Date of creation:||Jun 2003|
|Date of revision:|
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- Klette, T.J., 1998.
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- Hassan Molana & Catia Montagna, 1998.
"Market Structure, Cost Asymmetries and Fiscal Policy Effectiveness,"
Dundee Discussion Papers in Economics
089, Economic Studies, University of Dundee.
- Molana, Hassan & Montagna, Catia, 2000. "Market structure, cost asymmetries, and fiscal policy effectiveness," Economics Letters, Elsevier, vol. 68(1), pages 101-107, July.
- Tor Jakob Klette & Astrid Mathiassen, 1995.
"Job Creation, Job Destruction and Plant Turnover in Norwegian Manufacturing,"
136, Statistics Norway, Research Department.
- Tor Jakob Klette & Astrid Mathiassen, 1996. "Job Creation, Job Destruction and Plant Turnover in Norvegian Manufacturing," Annals of Economics and Statistics, GENES, issue 41-42, pages 97-125.
- Erling Holmøy & Torbjørn Hægeland, 1997. "Aggregate Productivity Effects of Technology Shocks in a Model of Heterogeneous Firms: The Importance of Equilibrium Adjustments," Discussion Papers 198, Statistics Norway, Research Department.
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