Monopolistic competition under frictional entries

Vincent Boitier ()
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Vincent Boitier: GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université

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Abstract: Abstract In this theoretical article, I develop a new theory of monopolistic competition models by introducing the notion of frictional entries. Frictional entries define a general sticky relationship between profits and entries, find large empirical support, and can encapsulate the standard free-entry condition and the entry condition with fixed costs as particular cases. I determine a steady-state equilibrium of such a new theory, and I find three results. First, I show that the new framework leads to a smaller mass of varieties, larger individual consumption/quantity, higher prices/markups, and larger aggregate consumption/production than traditional models. Second, I find that the new model predicts prices and markups that vary with income, even if preferences are additive. Last, I show that the presence of frictional entries can amplify TFP shocks and so can be considered as a new source of volatility for macroeconomic models.

Date: 2025-01-01
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Published in Oxford Economic Papers, 2025, 77 (1), pp.91-118. ⟨10.1093/oep/gpae018⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05137728

DOI: 10.1093/oep/gpae018

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