Consumer Preferences in Monopolistic Competition Models

This paper develops a novel approach to modeling preferences in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the effects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of firms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.firm prices; intensity of competition; consumer income.

Consumer Preferences in Monopolistic Competition Models

This paper develops a novel approach to modeling references in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the e¤ects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of �rms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices

Consumer Preferences in Monopolistic Competition Models

This paper develops a novel approach to modeling references in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the e¤ects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of �rms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.fi�rm prices; intensity of competition; consumer income

Globalisation and Market Structure

This paper reviews some puzzling economic aspects of globalisation and argues that they cannot be satisfactorily addressed in perfectly or monopolistically competitive models. Drawing on recent work, a model of oligopoly in general equilibrium is sketched. The model ensures theoretical consistency by assuming that firms are large in their own markets but small in the economy as a whole, and ensures tractability by assuming quadratic preferences defined over a continuum of goods. Applications considered include the effects of trade liberalisation on industrial structure, on cross-border merger waves, and on the distribution of income between skilled and unskilled workers.Cross-border mergers; GOLE (General Oligopolistic Equilibrium); market integration; trade and wages; trade liberalisation

Market structure and the taxation of international trade

The paper compares non-cooperative commodity taxation under the destination and origin principles under a variety of different assumptions about market structure. We consider a model of international duopoly with either quantity or price competition of firms and either segmented or integrated markets, and a monopolistic competition model with mobile firms. In each setting the international spillovers of tax policy are isolated and evaluated at the Pareto efficient tax rate. The sign of the net spillover, and thus the direction that commodity tax competition will take, depends critically on whether lump-sum taxes are available or commodity taxes must be used to finance the government budget

De-Industrialisation, Entrepreneurial Industries and Welfare

We develop a two-sector general equilibrium model with monopolistic competition featuring nonhomothetic production and a variable demand elasticity for the manufactured goods. An increase in the relative price of manufacturing varieties can lead to a decline in total industrial output in our framework, i.e., to de-industrialisation.The two key mechanisms behind this surprising result are that the founding of firms requires skilled labour as a fixed input requirement, and that the price increase can raise the profit margin in the manufacturing industry and thereby induce firm entry. When the manufacturing sector mainly adjusts at the extensive margin,we refer to this industry as being entrepreneurial. Due to the fixed input requirement entry reduces the effective endowment of skilled labour available for production.This reduces industrial output owing to a novel generalized version of the Rybczynski effect. De-industrialisation occurs if that effect is sufficiently large in comparison with the standard output price effect for a given number of firms. Furthermore we prove the counterintuitive result that de-industrialisation implies a fall in the output per firm and under plausible conditions a rise in welfare. Our results shed new light on the current debates about possible causes of premature de-industrialisation and its welfare effects.Entrepreneurial industries, monopolistic competition, de-industrialisation, welfare effects

Monopolistic Competition and International Trade: Reconsidering the Evidence

In this paper, we test some propositions about international trade flows that are derived from a model of monopolistic competition developed by Elhanan Helpman. We investigate whether the volume of trade between OECD countries is consistent with the predictions of a modal in which all trade is intra-industry trade in differentiated products. We then repeat the test with non-OECD countries. We also investigate whether the share of intra-industry trade is consistent with a more general theoretical model in which some, but not all, trade is intra-industry trade. Our results lead us to question the apparent empirical success of these models.

Paul Krugman: Trade and Geography - Economies of Scale, Differentiated Products and Transport Costs

Scientific Background, The Nobel Prize in Economic Sciences 2008. Over the centuries, international trade and the location of economic activity have been at the forefront of economic thought. Even today, free trade, globalization, and urbanization remain as commonplace topics in the popular debate as well as in scholarly analyses. Traditionally, trade theory and economic geography evolved as separate subfields of economics. More recently, however, they have converged become more and more united through new theoretical insights, which emphasize that the same basic forces simultaneously determine specialization across countries for a given international distribution of factors of production (trade theory) and the long-run location of those factors across countries (economic geography).Trade; Geography;

Monopolistic Competition and International Trade Theory

Almost twenty-five years after the appearance of Dixit and Stiglitz’s paper on monopolistic competition and optimum product diversity, I try to take stock of the progress which has been made in applying their approach to international trade theory. I review the principal applications to trade theory and present a new one - by embedding DS preferences in a specific-factors framework, I sketch a model which shows how multinational corporations can emerge even between countries with similar factor endowments. Finally, I address some limitations of the approach, including its treatment of variety, returns to scale, entry and firms’ strategies.Dixit-Stiglitz model; international trade with increasing returns and product differentiation; monopolistic competition; multinational corporations