Monopolistic Competition in General Equilibrium: Beyond the CES
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.
monopolistic competition, additive preferences, love for variety, heterogeneous firms.
D43, F12 and L13.
Novosibirsk State University (Russia)
Novosibirsk State University and Sobolev Institute of Mathematics (Russia)
Université de Paris 1 and PSE (France)
CORE-UCLouvain (Belgium), Paris School of Economics, CEPR and
RIEB, Kobe University
Rokkodai-cho, Nada-ku, Kobe