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Verti-zontal differentiation in monopolistic competition

By Francesco Di Comite, Jacques-Fran\ue7ois Thisse and Hylke Vandenbussche

Abstract

The recent availability of trade data at a firm-product-country level calls for a new generation of models able to exploit the large variability detected across observations. By developing a model of monopolistic competition in which varieties enter preferences non-symmetrically, we show how consumer taste heterogeneity interacts with quality and cost heterogeneity to generate a new set of predictions. Applying our model to a unique micro-level dataset on Belgian exporters with product and destination market information, we find that heterogeneity in consumer tastes is the missing ingredient of existing monopolistic competition models necessary to account for observed data patterns

Topics: D43, F12, F14, L16, ddc:330, Heterogeneous firms, Product Differentiation, Monopolistic Competition, Nonsymmetric varieties, Produktdifferenzierung, Konsumentenverhalten, Monopolistischer Wettbewerb, Industrie\uf6konomik, Belgien
Publisher: Brussels: National Bank of Belgium
Year: 2011
OAI identifier: oai:econstor.eu:10419/144428
Provided by: EconStor

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