Substitutability and Competition in the Dixit-Stiglitz Model
Winfried Koeniger and
Omar Licandro ()
No 1007, IZA Discussion Papers from Institute for the Study of Labor (IZA)
The effects of competition on growth are analyzed in the recent literature by comparing economies with the same market structure but different degrees of substitutability. In this note, we show that in a general equilibrium model with monopolistic competition à la Dixit- Stiglitz the effect of substitutability on the allocation of resources is independent of the associated change in competition. Higher substitutability increases welfare, output and productivity because resources shift towards the most productive sectors. However, since markups are equal across sectors, changes in market power do not affect the relative price of consumption goods, implying that the induced changes in market power do not have any direct effect on equilibrium allocations.
Keywords: substitution; monopolistic competition; market power; output (search for similar items in EconPapers)
JEL-codes: L16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Working Paper: Substitutability and Competition in the Dixit-Stiglitz Model (2004)
Working Paper: Substitutability and Competition in the Dixit-Stiglitz Model
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:iza:izadps:dp1007
Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Access Statistics for this paper
More papers in IZA Discussion Papers from Institute for the Study of Labor (IZA)
Address: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Contact information at EDIRC.
Series data maintained by Mark Fallak ().