Title
Monopolistic Competition in General Equilibrium: Beyond the CES
Abstract
We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium using the concept of Relative Love for Variety. When the RLV increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The CES is a borderline case. We extend our setting to heterogeneous firms and show that the cutoff cost decreases (increases) when the RLV increases (decreases). Last, we study how combining vertical, horizontal and cost heterogeneity affects our results.
Keywords
monopolistic competition, additive preferences, love for variety, heterogeneous firms.
JEL Classification
D43, F12 and L13.
Inquiries
Novosibirsk State University (Russia)
Sergey KOKOVIN
Novosibirsk State University and Sobolev Institute of Mathematics (Russia)
Mathieu PARENTI
Université de Paris 1 and PSE (France)
Jacques-François THISSE
CORE-UCLouvain (Belgium), Paris School of Economics, CEPR and
RIEB, Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059