Centre for Economic Policy Research Discussion Paper Series. ISSN 0265-8003. Centre for Economic Policy Research , 2020. No. DP15475.
Matsuyama K., Ushchev P.
We propose and characterize parametric families of homothetic demand systems, which feature a constant pass-through rate that is common across otherwise heterogenous monopolistically competitive firms. These parametric families offer natural, flexible, and yet tractable extensions of CES. In the case of complete pass-through, the markup rate is constant, as in CES, yet it can be heterogenous across firms, unlike in CES. In the case of incomplete pass-thorough, the price of each firm is log-linear in its marginal cost and its choke price with the common coefficients across firms. Tougher competition, captured by a lower “average price,” reduces the prices of all firms at a uniform rate, and hence without affecting their relative prices. Yet, it causes a disproportionately larger decline in the revenue and the profit among firms with lower markup rates.
, , When Does Procompetitive Entry Imply Excessive Entry? / Centre for Economic Policy Research. Series ISSN 0265-8003 "Centre for Economic Policy Research Discussion Paper Series". 2020. No. DP14991.
The Dixit-Stiglitz model of monopolistic competition with symmetric CES demand system with gross substitutes is widely used as a building block across many applied general equilibrium fields. Two of its remarkable features are the invariance of the markup rate and the optimality of the freeentry equilibrium. Of course, neither of these two features is robust. ...
Added: November 22, 2020