24 Pages Posted: 14 Jun 2000
Date Written: October 25, 1999
The purpose of this article is twofold. First, it deals with the question of technology choice in a framework where agents are 'small'. It shows that firms generically choose the same technology although different technologies are available. Our simple static model yields a non-monotonous relation between market size and the number of firms. Second, it re-examines the Dixit-Stiglitz model of monopolistic competition. We show that the comparative statics and welfare results from the often used CES case do not extend to the more general case of a variable elasticity of substitution (VES). While the comparative static results from the VES case are intuitive, the welfare analysis reveals some unappealing features of this approach.
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