Toward a theory of monopolistic competition
Philip Ushchev,
Mathieu Parenti (mathieu.parenti@psemail.eu) and
Jacques Thisse
ERSA conference papers from European Regional Science Association
Abstract:
We propose a general model of monopolistic competition, which encompasses existing models while being flexible enough to take into account new demand and competition features. Using the concept of Frechet differentiability, we determine a general demand system. The basic tool we use to study the market outcome is the elasticity of substitution at a symmetric consumption pattern, which depends on both the per capita consumption and the total mass of varieties. We impose intuitive conditions on this function to guarantee the existence and uniqueness of a free-entry equilibrium. Our model is able to mimic oligopolistic behavior and to replicate partial equilibrium results within a general equilibrium framework. For example, an increase in per capita income or in population size shifts prices (outputs) downwards (upwards). When firms face the same productivity shock, they adopt an incomplete pass-through policy, except when preferences are homothetic. Finally, we show how our approach can be generalized to the case of a multisector economy and extended to cope with heterogeneous firms and consumers.
Keywords: monopolistic competition; general equilibrium; additive preferences; homothetic preferences (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-com and nep-ind
References: Add references at CitEc
Citations:
Downloads: (external link)
https://www-sre.wu.ac.at/ersa/ersaconfs/ersa14/e140826aFinal01287.pdf (application/pdf)
Related works:
Journal Article: Toward a theory of monopolistic competition (2017)
Working Paper: Toward a Theory of Monopolistic Competition (2017)
Working Paper: Toward a theory of monopolistic competition (2017)
Working Paper: Toward a Theory of Monopolistic Competition (2016)
Working Paper: Toward a theory of monopolistic competition (2015)
Working Paper: Toward a theory of monopolistic competition (2014)
Working Paper: Toward a theory of monopolistic competition (2014)
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:wiw:wiwrsa:ersa14p1287
Access Statistics for this paper
More papers in ERSA conference papers from European Regional Science Association Welthandelsplatz 1, 1020 Vienna, Austria.
Bibliographic data for series maintained by Gunther Maier (gunther.maier@wu.ac.at).