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Pricing to Market in the Krugman Model

Paolo Bertoletti () and Federico Etro ()

No 61, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: We examine the role of per capita income in closed and open economy models of monopolistic competition based on non-homothetic directly additive preferences a la Dixit-Stiglitz, as in Krugman (1979). In a closed economy with free entry income is always neutral on markups and firm size. In a two-country trade model without transport costs, markups are higher in the country with higher income if the elasticity of substitution is decreasing in consumption. Pricing to market also emerges with transport costs.

Keywords: Pricing to market; Krugman model; Dixit-Stiglitz model (search for similar items in EconPapers)
JEL-codes: D11 D43 F12 L11 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2013-12
New Economics Papers: this item is included in nep-int
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Journal Article: Pricing to market in the Krugman model (2014) Downloads
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