Toward a Theory of Monopolistic Competition

50 Pages Posted: 25 Sep 2014

See all articles by Mathieu Parenti

Mathieu Parenti

Catholic University of Louvain (UCL)

Jacques-François Thisse

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

Philip Ushchev

National Research University Higher School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2014

Abstract

We propose a general model of monopolistic competition, which encompasses existing models while being flexible enough to take into account new demand and competition features. The basic tool we use to study the market outcome is the elasticity of substitution at a symmetric consumption pattern, which depends on both the per capita consumption and the total mass of varieties. We impose intuitive conditions on this function to guarantee the existence and uniqueness of a free-entry equilibrium. Comparative statics with respect to population size, GDP per capita and productivity shock are characterized through necessary and sufficient conditions. Finally, we show how our approach can be generalized to the case of a multisector economy and extended to cope with heterogeneous firms and consumers.

Keywords: additive preferences, general equilibrium, homothetic preferences, monopolistic competition

JEL Classification: D43, L11, L13

Suggested Citation

Parenti, Mathieu and Thisse, Jacques-François and Ushchev, Philip, Toward a Theory of Monopolistic Competition (June 2014). CEPR Discussion Paper No. DP10014. Available at SSRN: https://ssrn.com/abstract=2501466

Mathieu Parenti (Contact Author)

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

Philip Ushchev

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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