Verti-zontal Differentiation in Monopolistic Competition
Francesco Di Comite,
Jacques-François Thisse () and
Hylke Vandenbussche ()
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Jacques-François Thisse: UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)
Hylke Vandenbussche: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE), National Bank of Belgium and KULeuven,Licos
No 2011046, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)
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)
New Economics Papers: this item is included in nep-bec, nep-com and nep-int
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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)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2011046
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