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Verti-zontal Differentiation in Monopolistic Competition

Francesco Di Comite, Jacques Thisse () and Hylke Vandenbussche ()

No 2011046, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

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)
Pages: 51
Date: 2011-12-06
New Economics Papers: this item is included in nep-bec, nep-com and nep-int
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Related works:
Working Paper: Verti-zontal Differentiation in Monopolistic Competition (2012) Downloads
Working Paper: Verti-zontal Differentiation in Monopolistic Competition (2011) Downloads
Working Paper: Vert-zonal Differentiation in Monopolistic Competition (2011) Downloads
Working Paper: Verti-zontal differentiation in monopolistic competition (2011) Downloads
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