Monopolistic Competition: Critical Evaluation the Theory of Monopolistic Competition with Specific Reference to the Seminal 1977 Paper by Dixit and Stiglitz

18 Pages Posted: 1 Oct 2011

See all articles by Dushko Josheski

Dushko Josheski

University Goce Delcev

Cane Koteski

University Goce Delcev

Darko Lazarov

University Goce Delcev

Date Written: September 29, 2011

Abstract

This paper revisits the D-S (Dixit-Stiglitz) model. It’s a simple general monopolistic model with n monopolistic goods, and a numeraire good Labour (w=1 ); aggregation for all goods in the economy. We have considered in our paper constant elasticity of substitution case(CES). On the supply side, the assumption is that the labour is perfectly mobile factor of production across the sectors, so as a result in our model there is single wage rate which we denote as in the other sectors than monopolistic there is constant returns to scale and we can specify the production function: The Dixit-Stiglitz model of monopolistic competition works only when n is large; from the functions of the productions best when one applies linear production function. Under increasing returns to scale monopolistic competition will lead to a greater degree of product differentiation than it is socially optimal.

Keywords: Monopolistic competition, CES, Dixit-Stiglitz model, product differentiation

JEL Classification: B21, D43

Suggested Citation

Josheski, Dushko and Koteski, Cane and Lazarov, Darko, Monopolistic Competition: Critical Evaluation the Theory of Monopolistic Competition with Specific Reference to the Seminal 1977 Paper by Dixit and Stiglitz (September 29, 2011). Available at SSRN: https://ssrn.com/abstract=1935585 or http://dx.doi.org/10.2139/ssrn.1935585

Dushko Josheski (Contact Author)

University Goce Delcev ( email )

Stip
Macedonia
+389 32 550 000 (Phone)
+389 32 390 700 (Fax)

HOME PAGE: http://www.ugd.edu.mk/

Cane Koteski

University Goce Delcev ( email )

PO box 201
Stip, 2000
Macedonia

Darko Lazarov

University Goce Delcev ( email )

PO box 201
Stip, 2000
Macedonia
+389 550 317 (Phone)

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