Technology Choice and Monopolistic Competition
University of Cologne
University of Giessen - Department of Economics
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.
Number of Pages in PDF File: 24
Date posted: June 14, 2000