Monopolistic Competition and Efficiency under Firm Heterogeneity and Nonadditive Preferences

Kyle Bagwell and Seung Hoon Lee

American Economic Journal: Microeconomics, 2023, vol. 15, issue 4, 208-67

Abstract: We consider the single-sector version of the Melitz-Ottaviano model of monopolistic competition with heterogeneous firms. We characterize the first-best and market allocations. We find that the market provides the first-best level of entry but too little selection; hence, the market provides too many varieties and too little aggregate quantity, and allocates too little (much) production to low (high) cost realizations. Allowing for a broad family of quantity allocation functions, we establish sufficient conditions for the global optimality of the first-best solution. Several important extensions are also examined.

JEL-codes: D21 D43 D50 D60 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mic.20210099 (application/pdf)
https://www.aeaweb.org/doi/10.1257/mic.20210099.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/mic.20210099.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmic:v:15:y:2023:i:4:p:208-67

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/mic.20210099

Access Statistics for this article

American Economic Journal: Microeconomics is currently edited by Johannes Hörner

More articles in American Economic Journal: Microeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().