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Working paper

Monopolistic competition under uncertainty

A. Enterprises and product markets. WP 14/02E. The Economics Education and Research Consortium, 2014. No. 14/02E.
Inspired by advances in general equilibrium modelling with monopolistic competition were-consider the problem of the choice of firms under uncertainty, explore it in the framework of general equilibrium modelling, and develop a theory of monopolistic competition under demand uncertainty. We distinguish between two cases of uncertainty. In the first case the uncertainty disappears by the moment of trade and the output but not the prices are chosen under uncertainty. Then the uncertainty is established not to affect the equilibrium. The trade under uncertainty, considered in the second case, causes market imperfetions. The supply is bigger (smaller) than the expected demand when the goods are good (bad) substitutes. In contrast to previous study, we show that uncertainty affects basically the prices and demand, but not the output.