Monopolistic Competition in Two-Sector Economy under Demand Uncertainty

Alexander Shapoval and Vasiliy Mikhailovich Goncharenko ()
Additional contact information
Vasiliy Mikhailovich Goncharenko: Financial University under the Government of the Russian Federation

Spatial Economics=Prostranstvennaya Ekonomika, 2014, issue 3, 12-25

Abstract: The article deals with the theory of monopolistic competition under demand uncertainty. The authors consider the economy with labor immobility consisting of the high-tech sector with monopolistic competition and the standard sector with perfect competition. Preferences between sectors are specified by the Cobb - Douglas production function. It is assumed that companies make output decisions under preferences uncertainty and consumers’ distribution by sectors will be known by the time of realization. It means that firms are informed about consumer demand with accuracy up to a multiplicative uncertainty which is generated by random parameters in the Cobb - Douglas production function. The paper shows that demand uncertainty leads to consistent growth of prices and wages in high-tech sector in relation to salaries in the second sector. The impact of uncertainty on welfare is ambiguous. In particular, under the known expected value of uncertainty customers derive benefit from exaggerated companies’ expectations about clients’ desire to consume high-tech goods.

Keywords: ?; monopolistic; competition; ?; backward; induction; ?; demand; uncertainty (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.spatial-economics.com/images/spatial-ec ... 025.Shapoval.pdf.pdf (application/pdf)
http://spatial-economics.com/eng/arkhiv-nomerov/20 ... /645-SE-2014-3-12-25 (text/html)

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:far:spaeco:y:2014:i:3:p:12-25

DOI: 10.14530/se.2014.3.12-25

Access Statistics for this article

Spatial Economics=Prostranstvennaya Ekonomika is currently edited by Pavel Minakir

More articles in Spatial Economics=Prostranstvennaya Ekonomika from Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia) Contact information at EDIRC.
Bibliographic data for series maintained by Sergey Rogov ().