A General Theory of Endogenous Market Structures

35 Pages Posted: 26 Jul 2014 Last revised: 6 Mar 2015

See all articles by Paolo Bertoletti

Paolo Bertoletti

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Federico Etro

Florence School of Economics and Management

Date Written: July 18, 2014

Abstract

We provide a unified approach to imperfect (monopolistic, Bertrand and Cournot) competition equilibria with demand functions derived from symmetric preferences over a large but finite number of goods. The equilibrium markups depend on the Morishima Elasticity of Substitution/Complementarity between goods, and can be derived directly from the utility functions and ranked unambiguously. We characterize the endogenous market structures, their dependence on market size, income and firms’ productivity and compare them with the optimal allocations. Finally, we apply our results to the case of preferences such as Generalized Leontief, Generalized linear and Generalized quadratic that we introduce in the literature on imperfect competition.

Keywords: Monopolistic Competition, Imperfect Competition, Elasticity of Substitution, Free Entry

JEL Classification: D11, D43, L11

Suggested Citation

Bertoletti, Paolo and Etro, Federico, A General Theory of Endogenous Market Structures (July 18, 2014). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 09/WP/2014, Available at SSRN: https://ssrn.com/abstract=2471490 or http://dx.doi.org/10.2139/ssrn.2471490

Paolo Bertoletti

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Federico Etro (Contact Author)

Florence School of Economics and Management ( email )

Via delle Pandette 32
Firenze, Tuscany 30123
Italy

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