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Monopolistic competition in general equilibrium: beyond the CES

Author

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  • ZHELOBODKO, Evgeny

    (Novosibirsk State University, Russia)

  • KOKOVIN, Sergey

    (Novosibirsk State University and Sobolev Institute of Mathematics, Russia)

  • PARENTI, Mathieu

    (Université Paris 1 and PSE, France)

  • THISSE, Jean - François

    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; Paris School of Economics and CEPR)

Abstract

We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium using the concept of Relative Love for Variety. When the RLV increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The CES is a borderline case. We extend our setting to heterogeneous firms and show that the cutoff cost decreases (increases) when the RLV increases (decreases). Last, we study how combining vertical, horizontal and cost heterogeneity affects our results.

Suggested Citation

  • ZHELOBODKO, Evgeny & KOKOVIN, Sergey & PARENTI, Mathieu & THISSE, Jean - François, 2011. "Monopolistic competition in general equilibrium: beyond the CES," LIDAM Discussion Papers CORE 2011010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2011010
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    Cited by:

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    2. Zhelobodko, E. & Sidorov, A. & Thisse, J.-F., 2013. "Monopolistic Competition vs Oligopoly in the "Large Economy": How Much Is Difference?," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 10-26.
    3. Feenstra, Robert C., 2018. "Restoring the product variety and pro-competitive gains from trade with heterogeneous firms and bounded productivity," Journal of International Economics, Elsevier, vol. 110(C), pages 16-27.
    4. Igor Bykadorov & Andrea Ellero & Stefania Funari & Sergey Kokovin & Pavel Molchanov, 2016. "Painful Birth of Trade Under Classical Monopolistic Competition," HSE Working papers WP BRP 132/EC/2016, National Research University Higher School of Economics.
    5. 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.
    6. Commendatore, Pasquale & Kubin, Ingrid & Sushko, Iryna, 2022. "Big or small? A new economic geography model with an endogenous switch in the market structure," Chaos, Solitons & Fractals, Elsevier, vol. 161(C).
    7. Lu, Yi & Tao, Zhigang & Yu, Linhui, 2011. "Agglomeration and Markup," MPRA Paper 38974, University Library of Munich, Germany, revised May 2012.
    8. Parenti, Mathieu & Sidorov, Alexander & Thisse, Jacques-François, 2014. "Revisiting Cournot and Bertrand in the presence of income effects," MPRA Paper 69641, University Library of Munich, Germany.
    9. Costas Arkolakis & Arnaud Costinot & Dave Donaldson & Andrés Rodríguez-Clare, 2019. "The Elusive Pro-Competitive Effects of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 46-80.
    10. Steinwender, Claudia, 2015. "The roles of import competition and export opportunities for technical change," LSE Research Online Documents on Economics 61154, London School of Economics and Political Science, LSE Library.
    11. Mathieu Parenti & Alexander V. Sidorov & Jacques-François Thisse & Evgeny V. Zhelobodko, 2017. "Cournot, Bertrand or Chamberlin: Toward a reconciliation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(1), pages 29-45, March.
    12. Yoshitsugu Kanemoto, 2012. "Cost-Benefit Analysis in Monopolistic Competition Models of Urban Agglomeration," GRIPS Discussion Papers 12-04, National Graduate Institute for Policy Studies.
    13. Bykadorov, Igor & Gorn, Alexey & Kokovin, Sergey & Zhelobodko, Evgeny, 2015. "Why are losses from trade unlikely?," Economics Letters, Elsevier, vol. 129(C), pages 35-38.
    14. Pascal Belan & Clément Carbonnier & Martine Carré, 2017. "Tax devaluation with endogenous margins," Working Papers hal-01515806, HAL.
    15. Vladimir Matveenkov, 2012. "Structure of Equilibria in a Model of Endogenous Growth with Horizontal Innovations," DEGIT Conference Papers c017_051, DEGIT, Dynamics, Economic Growth, and International Trade.

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    More about this item

    Keywords

    monopolistic competition; additive preferences; love for variety; heterogeneous firms;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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