Vert-zonal Differentiation in Monopolistic Competition

Francesco Di Comite, Jean-François Thisse and Hylke Vandenbussche

LICOS Discussion Papers from LICOS - Centre for Institutions and Economic Performance, KU Leuven

Abstract: The pattern of trade observed from firm-product-country data calls for a new generation of models. To address the unexplained variation in the data, we propose a new model of monopolistic competition where varieties enter preferences non-symmetrically, capturing both horizontal and vertical differentiation in an unprecedented way. Together with a variable elasticity of substitution, competition effects, varying markups and prices across countries, this results in a tractable model whose predictions differ from existing ones. Using the population of Belgian exporters, our model succeeds in explaining the hitherto unexplained variation. The implications call for a re-thinking of earlier results and measurement practices.

Keywords: Heterogeneous; firms; -; Horizontal; differentiation; -; Vertical; differentiation; -; Monopolistic; competition; -; non; symmetric; varieties (search for similar items in EconPapers)
JEL-codes: D43 F12 F14 L16 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-com and nep-int
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http://www.econ.kuleuven.be/licos/publications/dp/dp300.pdf

Related works:
Working Paper: Verti-zontal Differentiation in Monopolistic Competition (2012)
Working Paper: Verti-zontal Differentiation in Monopolistic Competition (2011)
Working Paper: Verti-zontal Differentiation in Monopolistic Competition (2011)
Working Paper: Verti-zontal differentiation in monopolistic competition (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:lic:licosd:30011

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