Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Friday, August 2, 2013

Monopolistic Competition: A Dual Approach with an Application to Trade

Posted by D. Daniel Sokol

Paolo Bertoletti (Department of Economics and Management, University Of Pavia) and Federico Etro (Department of Economics, University Of Venice Ca Foscari) discuss Monopolistic Competition: A Dual Approach with an Application to Trade.

ABSTRACT: We study monopolistic competition under indirect additivity of preferences. This is dual to the Dixit-Stiglitz model, where direct additivity is assumed, with the CES case as the only common ground. Other examples include (perceived) demand functions that are exponential or linear. Our equilibrium results are generally in contrast with those received by the literature. An increase of the number of consumers never affects prices and firms' size, but increases proportionally the number of firms, creating pure gains from variety. An increase in individual income increases prices (and more than proportionally the number of varieties) and reduces firms' size if and only if the price elasticity of demand is increasing. We also study the endogenous market structure with Bertrand competition (in which a pro-competitive effect of market size arises) and the case for inefficient entry. Finally, we provide an application to trade.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/08/monopolistic-competition-a-dual-approach-with-an-application-to-trade-.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0192ac1f6546970d

Listed below are links to weblogs that reference Monopolistic Competition: A Dual Approach with an Application to Trade :

Comments

Post a comment