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## Toward a Theory of Monopolistic Competition

Economics/EC.
WP BRP.
Высшая школа экономики
,
2016.
No. WP BRP 121/EC/2016.

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. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to guarantee empirically relevant properties of a free-entry equilibrium. Comparative statics with respect to market size and productivity shock are characterized through necessary and sufficient conditions. Furthermore, we show that the attention to the constant elasticity of substitution (CES) based on its normative implications was misguided: constant mark-ups, additivity and homotheticity are neither necessary nor sufficient for the market to deliver the optimum outcome. Our approach can cope with heterogeneous firms once it is recognized that the elasticity of substitution is firm-specific. Finally, we show how our set-up can be extended to cope with multiple sectors.

Parenti M., Ushchev P., Thisse J., Journal of Economic Theory 2017 Vol. 167 No. 1 P. 86-115

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. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to ...

Added: January 14, 2017

Zhelobodko E. V., Kokovin S. G., Parenti M. et al., Econometrica 2012 Vol. 80 No. 6 P. 2765-2784

We propose a model of monopolistic competition with additive preferences and variable marginal costs. Using the concept of "relative love for variety," we provide a full characterization of the free-entry equilibrium. When the relative love for variety increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The ...

Added: February 5, 2013

Goncharenko V., Pokrovsky D. A., Shapoval S., The Stable Coexistence of Oligopolies and the Competitive Fringe / Высшая школа экономики. Series WP BRP "Economics/EC". 2018. No. 196.

In this paper, we introduсe a simple new theory on mixed сompetition between oligopolistiс firms and the competitive fringe, assuming a comparative advantage for big firms and free entry for small firms. Oligopolies are defined as conglomerates, each part of which benefits from joint operations through lower costs. Our theory implies that (i) industries with ...

Added: August 15, 2018

Behrens K., Murata Y., Journal of Monetary Economics 2012 No. 59 P. 703-720

We analyze the impact of globalization on individual gains from trade in a general equilibrium model of monopolistic competition featuring product diversity, pro-competitive effects and income heterogeneity between and within countries. Although trade reduces markups in both countries in our framework, its impact on variety depends on their relative position in the world income distribution: ...

Added: November 23, 2013

Parenti M., Ushchev P., Thisse J., Toward a theory of monopolistic competition / Centre for Economic Policy Research. Series ISSN 0265-8003 "Centre for Economic Policy Research Discussion Paper Series". 2014. No. DP10014.

We propose a general model of monopolistic competition, which encompasses existing models while being exible 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 ...

Added: August 9, 2014

Behrens K., Murata Y., Journal of Economic Theory 2007 No. 136 P. 776-787

Added: November 23, 2013

Pokrovsky D. A., Shapoval S., Журнал Новой экономической ассоциации 2015 № 2 С. 36-62

We define a general equilibrium model with heterogeneous individuals who are endowed by identical preferences, given by utility function with constant elasticity of substitution (CES), and by heterogeneous entrepreneurial skills. We find that scale effects linked to migration are tractable in the framework of the constructed model because the migration changes the market size together ...

Added: November 13, 2014

Pospelov I. G., Radionov S., On The Social Efficiency In Monopolistic Competition Models / Высшая школа экономики. Series WP BRP "Economics/EC". 2014. No. WP BRP 80/EC/2014 .

We consider standard monopolistic competition models with aggregate consumer's preferences defined by two well-known classes of utility functions | the Kimball utility function and the variable elasticity of substitution utility function. It is known that market equilibrium is efficient only for the special case when utility function has a constant elasticity of substitution, but ...

Added: December 4, 2014

Pospelov I. G., Radionov S., Advances in Systems Science and Applications 2020 Vol. 20 No. 2 P. 119-130

We present a natural generalization of the Dixit-Stiglitz monopolistic competition model (DSM) — we assume that there is a continuum of industries, each of them described as in DSM, and each characterized with its own elasticity of substitution. Although firms in all industries share the same level of productivity and costs, exogenous technological progress leads ...

Added: December 8, 2020

Sharunova V., Aistov A., Kichko S. et al., Экономический журнал Высшей школы экономики 2015 Т. 19 № 2 С. 218-248

This paper studies how heterogeneous individuals, that differ by entrepreneurial skills
and productivity as a worker, endogenously choose their occupation (workers vs.
entrepreneurs) based on expected income comparison (wages vs. profits). Each entrepreneur runs a
firm that produces a single variety of a horizontally differentiated good under monopolistic
competition. We show that the cutoff for occupational selection between workers ...

Added: June 16, 2015

Vasilyev S., Pilnik N., Radionov S., Математическое моделирование 2018 Т. 30 № 12 С. 111-128

In this article we propose the description and the rationale of the heuristic approach, which can be used in applied dynamic economic models containing agents' optimization problems. Solution of these problems leads to a system containing differential and algebraic equations, inequalities and complementary slackness conditions. These conditions significantly complicate the analysis of such models even ...

Added: November 14, 2018

Rozanova N. M., Общественные науки и современность 2021 № 1 С. 63-72

Patterns for competitive and monopoly behaviour, market power configurations and instruments of interfirm relationships are under radical transformation in a digital era. There arise new forms of monopolistic strategies that aim at establishing, strengthening and withstanding long-term market power in various industries. Analysis of Russian and foreign economic investigations that was done in the article ...

Added: March 20, 2021

Goncharenko V., Shapoval S., Журнал Новой экономической ассоциации 2018 Т. 37 № 1 С. 12-33

Using the General Equilibrium Model of the two-sector economy, the impact of consumer demand on the structure of employment, income inequality and the welfare of society is studied. It is assumed that the traditional sector is
characterized by perfect competition, and single-product firms compete monopolistically in the high-tech sector and set wages as a result of negotiations with employees. In ...

Added: April 14, 2018

Malakhov D., Pilnik N., Pospelov I. G., Stability of Distribution of Relative Sizes of Banks as an Argument for the Use of the Representative Agent Concept. / Высшая школа экономики. Series EC "Economics". 2015. No. WP BRP 116/EC/2015.

We propose a new theoretical model of the large-scale banking system of an open economy. It is shown that the distribution of relative sizes of individual banks is stable over time and does not depend on the volume of deposits. Our findings provide an additional argument in favor of use of the representative agent concept ...

Added: December 24, 2015

Osharin A., Verbus V. A., Heterogeneous consumers and market structure in a monopolistically competitive setting / EERC. Series "Labor markets and social policy". 2015. No. 15/03E.

The present paper extends the traditional Dixit and Stiglitz set-up by introducing consumers’ workers’ heterogeneity into a general equilibrium model of monopolistic competition. The model obtains a closed-form solution for a symmetric equilibrium and shows how the market outcome depends on the joint distribution of consumers’/workers’ taste and labor productivities. In contrast to the traditional ...

Added: March 8, 2016

Ivanova V., Ushchev P., The Scandinavian Journal of Economics 2019 Vol. 121 No. 3 P. 1244-1269

Standard measures of competitive toughness fail to capture the fact that, as consumers optimize intertemporally, firms operating today compete with (yet non-existent) businesses which will be started tomorrow. We develop a two-tier CES model of dynamic monopolistic competition in which the impact of product differentiation on the market outcome depends crucially on the elasticity of ...

Added: January 9, 2018

Shapoval S., Гончаренко В. М., Пространственная экономика 2014 № 3 С. 12-25

The article deals with the theory of monopolistic competition under demand uncertainty. The authors consider the economy with labor immobility consisting of the high-tech sector with monopolistic competition and the standard sector with perfect competition. Preferences between sectors are specified by the Cobb – Douglas production function. It is assumed that companies make output
decisions under ...

Added: January 16, 2015

Zakharenko R., Seitz M., Тарасов А., Journal of International Economics 2015 Vol. 95 No. 2 P. 305-318

This paper develops a quantitative model of trade, military con icts, and defense spending. Trade liberalization between two countries reduces probability of an armed con ict between them, causing both to cut defense spending. This in turn causes a domino eect on defense spending by other countries. As a result, both countries and the rest ...

Added: December 12, 2014

Vasilyev S., Pilnik N., Radionov S., Mathematical Models and Computer Simulations (USA) 2019 Vol. 11 No. 4 P. 611-621

We propose a description and explanation of a heuristic approach that can be used in
applied dynamic economic models containing agent optimization problems. Solving such problems,
we can obtain a system containing differential and algebraic equations, inequalities, and complementary
slackness conditions. These conditions significantly complicate the analysis of such models even
at the calibration stage. We show that the ...

Added: July 11, 2019

Andreev M., Pilnik N., Pospelov I. G. et al., International Journal of Arts and Sciences 2013 Vol. 06 No. 1 P. 125-145

This paper presents a three-product dynamic model of Russian economy. The calculation of the model comes to a boundary problem on a long interval of time for a rigid dynamic system. Thus development of a supercomputer algorithm method is required. The model describes complete system of balances of uniform labor, three products (export, import and ...

Added: January 20, 2014

Osharin A., Verbus V. A., Heterogeneous Consumers and Trade Patterns in a Monopolistically Competitive Setting / Высшая школа экономики. Series WP BRP "Economics/EC". 2016. No. WP BRP 131/EC/2016 .

The paper considers a two-country trade model of monopolistic competition featuring the heterogeneity of consumer preferences both within and across countries. The incorporation of heterogeneity into a traditional monopolistic competition setting is achieved by assuming different elasticities of substitution in the CES utility function for different consumers. The proposed setup expands on the traditional model ...

Added: April 1, 2016

Radionov S., Pospelov I. G., HSE Economic Journal 2015 Vol. 19 No. 3 P. 386-394

We consider standard monopolistic competition models in the spirit of Dixit
and Stiglitz or Melitz with aggregate consumer's preferences defined by two well known classes of utility functions – the implicitly defined Kimball utility function
and the variable elasticity of substitution utility function. These two classes gene ralize classical constant elasticity of substitution utility function and overcome its
lack of ...

Added: October 18, 2015

Antoshchenkova I., Bykadorov I., Математическая теория игр и ее приложения 2014 Т. 6 № 2 С. 3-31

We consider a monopolistic competition model with endogenous choice of technology in the closed economy case. The aim is to make comparative statistics of equilibrium and social optimal solutions with respect to "technological innovation"; parameter which influences on costs. Key findings: with the growth of innovation and investment in the production increase; behavior of the ...

Added: October 18, 2014

Levando D. V., Economic Annals 2012 Vol. 194 No. 1 P. 63-106

The Strategic Market Game (SMG) is the general equilibrium mechanism of strategic reallocation of resources. It was suggested by Shapley and Shubik in a series of papers in the 70s and it is one of the fundamentals of contemporary monetary macroeconomics with endogenous demand for money. This survey highlights features of the SMG and some ...

Added: March 12, 2013