Verti-Zontal Differentiation in Monopolistic Competition

National Bank of Belgium Working Paper No. 216

59 Pages Posted: 25 Oct 2011

See all articles by Francesco Di Comite

Francesco Di Comite

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN); European Commission, Joint Research Centre, Sevilla; Catholic University of Louvain (UCL)

Jacques-François Thisse

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

Hylke Vandenbussche

Catholic University of Leuven (KUL), CEPR

Multiple version iconThere are 4 versions of this paper

Date Written: October 1, 2011

Abstract

The recent availability of trade data at a firm-product-country level calls for a new generation of models able to exploit the large variability detected across observations. By developing a model of monopolistic competition in which varieties enter preferences non-symmetrically, we show how consumer taste heterogeneity interacts with quality and cost heterogeneity to generate a new set of predictions. Applying our model to a unique micro-level dataset on Belgian exporters with product and destination market information, we find that heterogeneity in consumer tastes is the missing ingredient of existing monopolistic competition models necessary to account for observed data patterns.

Keywords: Heterogeneous firms, Product Differentiation, Monopolistic Competition, Nonsymmetric varieties

JEL Classification: D43, F12, F14, L16

Suggested Citation

Di Comite, Francesco and Thisse, Jacques-François and Vandenbussche, Hylke, Verti-Zontal Differentiation in Monopolistic Competition (October 1, 2011). National Bank of Belgium Working Paper No. 216. Available at SSRN: https://ssrn.com/abstract=1949127 or http://dx.doi.org/10.2139/ssrn.1949127

Francesco Di Comite (Contact Author)

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

European Commission, Joint Research Centre, Sevilla ( email )

Call Inca Garcilaso 3
Sevilla, SE 41092
Spain

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

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

Hylke Vandenbussche

Catholic University of Leuven (KUL), CEPR ( email )

Faculty of Economics
Naamsestraat 69
B-3000 Leuven, 3000
Belgium
+32 16 326 920 (Phone)
+32 16 326 732 (Fax)

HOME PAGE: https://www.sites.google.com/site/vandenbusschehylke/home-1

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