Monopolistic Competition: Beyond the CES

44 Pages Posted: 16 Aug 2010

See all articles by Sergey Kokovin

Sergey Kokovin

Novosibirsk State University

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Evegeny Zhelobodko

Novosibirsk State University - Department of Economics

Date Written: August 2010

Abstract

We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium based on an Arrow-Pratt measure of concavity of the utility, interpreted as the relative love for variety. When the relative love for variety increases with the consumption level, the market displays standard competitive effects. On the contrary, when it decreases, the equilibrium price increases with the number of firms and the market size, while the CES is the borderline case. Finally, we apply our setting to trade theory and uncover several new properties hindered by the CES, such as dumping and reverse dumping.

Keywords: entry, monopolistic competition, relative love for variety, trade

JEL Classification: D43, F12, L13

Suggested Citation

Kokovin, Sergey and Thisse, Jacques-François and Zhelobodko, Evegeny, Monopolistic Competition: Beyond the CES (August 2010). CEPR Discussion Paper No. DP7947. Available at SSRN: https://ssrn.com/abstract=1658254

Sergey Kokovin (Contact Author)

Novosibirsk State University ( email )

2 Pirogova Street
Novosibirsk, 630090
Russia

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Evegeny Zhelobodko

Novosibirsk State University - Department of Economics ( email )

2 Pirogova Street
Novosibirsk 630090
Russia

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