The Monopolistic Competition Revolution in Retrospect

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Contributors......Page 13
Preface......Page 15
1.1 Introduction......Page 17
1.2 Precursory thoughts on imperfect competition......Page 19
1.3 Monopolistic competition in the 1930s......Page 23
1.4 The second monopolistic revolution......Page 28
Preferences......Page 29
Technology and pricing......Page 31
Chamberlinian equilibrium......Page 32
Welfare properties......Page 35
1.4.2 Evaluation......Page 42
1.5 Structure of the book......Page 43
Part II: current perspectives......Page 44
Background......Page 45
The book......Page 47
Background......Page 48
The book......Page 50
Background......Page 51
The book......Page 53
Background......Page 54
The book......Page 56
REFERENCES......Page 58
Part I Underground classics......Page 63
2.1 Introduction......Page 65
2.2 The model......Page 70
2.3 The market solution......Page 73
2.4 Competitive versus optimal size of risky industry......Page 74
2.5 Correlated returns: the competitive analysis......Page 76
2.6 Increasing marginal entrance costs......Page 79
2.7 Reinterpretation in partial equilibrium terms......Page 80
2.8 Concluding comments......Page 83
REFERENCES......Page 84
3.1 Introduction......Page 86
3.2 The basic model......Page 87
3.3 Monopolistically competitive equilibrium......Page 92
3.4 Constrained optimality......Page 94
3.5 Unconstrained optimum......Page 98
3.6 Possible generalisations......Page 102
3.7 Concluding remarks......Page 103
REFERENCES......Page 104
4.1 Introduction......Page 105
4.2 The demand for variety......Page 108
4.3.1 Market equilibrium......Page 113
4.3.2 Constrained optimum......Page 114
4.3.3 Unconstrained optimum......Page 117
4.4 Diversity as a public good......Page 119
4.5 Variable elasticity utility functions......Page 123
4.6 Asymmetric cases......Page 128
4.7 Concluding remarks......Page 135
REFERENCES......Page 136
Part II Current perspectives......Page 137
5.1 Introduction......Page 139
5.2 Alternative models of monopolistic competition......Page 141
5.2.1 Reduced-form models......Page 143
5.2.2 Structural models......Page 145
5.3 Some themes from the conference papers......Page 147
5.4 Concluding remarks......Page 148
REFERENCES......Page 149
6.1 Introduction......Page 150
6.2 Chamberlin’s theory of monopolistic competition......Page 151
6.3 Alternative modelling approaches......Page 153
6.4 Normative analysis......Page 156
6.5 Contestability doctrines......Page 158
6.6 Schumpeterian competition......Page 160
6.7 Conclusion......Page 161
REFERENCES......Page 163
7.1 Introduction......Page 165
7.2 Trade......Page 166
7.2.1 A digression......Page 167
7.3 Growth......Page 168
REFERENCES......Page 171
Part III International trade......Page 173
8.1 Introduction......Page 175
8.2 The Dixit–Stiglitz model and trade theory......Page 176
8.2.1 Preferences and demand......Page 177
8.2.2 Production and equilibrium......Page 179
8.2.3 Empirical anomalies......Page 180
8.2.4 Product differentiation as a cause of trade......Page 181
8.2.5 The return of factor endowments......Page 182
8.2.6 Intermediate goods......Page 183
8.2.7 New trade theory goes global: multinationals and economic geography......Page 184
8.2.8 The proof of the pudding?: testing the new trade theory......Page 186
8.3 An extension......Page 187
8.4.1 Variety......Page 190
8.4.2 Returns to scale......Page 192
8.4.3 Entry......Page 193
8.4.4 Strategies......Page 194
8.5 Conclusion......Page 195
REFERENCES......Page 197
9.1 Introduction......Page 201
9.2.1 The basic model......Page 203
9.2.2 Ricardian variations......Page 207
9.2.4 Economic growth......Page 210
9.3 National production externalities with trade: model II......Page 211
9.4.1 Introducing international production economies in the basic model......Page 212
9.4.2 Large economies: the realised product transformation frontier......Page 215
9.5 Factor market flexibility and industrialisation patterns......Page 218
9.6 Globalisation and wages......Page 219
REFERENCES......Page 222
Part IV Economic geography......Page 227
10.1 Introduction......Page 229
10.2 The standard core–periphery model......Page 230
10.2.1 Equilibrium expressions......Page 231
10.2.2 Choice of numéraire and units......Page 233
10.3.1 A caveat on full agglomeration......Page 234
10.3.2 Local stability analysis......Page 235
10.4 Catastrophic agglomeration and locational hysteresis......Page 237
10.5.1 The three forces and the impact of trade costs......Page 238
The local competition effect......Page 239
Demand linkages......Page 241
The no-black-hole condition......Page 242
10.5.3 The break point......Page 243
10.5.5 Tomahawk bifurcation......Page 244
On the number of interior steady states......Page 245
10.6.1 When does symmetry break? Pareto dominance and migration shocks......Page 246
10.7.1 Global stability and myopic expectations......Page 247
10.7.3 Global stability and forward-looking expectations......Page 248
REFERENCES......Page 250
11.1 Introduction......Page 252
Demand......Page 254
Supply......Page 255
Equilibrium prices and production......Page 256
11.2.2 The labour market and wage rigidity......Page 258
11.3 Short-run implications of globalisation......Page 260
11.3.1 Relative wages between regions......Page 261
11.3.2 Relative intra-regional wages and unemployment......Page 264
Fall in the transportation costs of unfinished goods (increase in Tau)......Page 265
Fall in the transportation costs of producer services (increase in Rho)......Page 268
11.4 Long-run implications of globalisation......Page 270
11.5 Conclusions......Page 274
REFERENCES......Page 275
12.1 Introduction......Page 277
12.2.1 The problem defined......Page 279
12.2.2 A spatial wage structure......Page 282
12.2.3 Some critical remarks......Page 284
12.3.1 The German unification......Page 287
12.3.2 Empirical results: part I......Page 289
Estimating the structural parameters by the means of the reduced form wage equation (12.2)......Page 291
12.3.3 Empirical results: part II......Page 294
12.4 Conclusions......Page 297
REFERENCES......Page 298
13.1 Introduction......Page 301
13.2 Krugman’s application of Dixit–Stiglitz......Page 302
13.3.1 Systems of cities models......Page 305
13.3.2 Geography......Page 307
13.3.3 Empirical support......Page 308
13.3.4 Theory......Page 310
13.4 Dixit–Stiglitz as micro-foundations for agglomeration......Page 312
13.5 Recent developments......Page 313
13.5.1 New generation models......Page 314
13.5.2 Services......Page 315
REFERENCES......Page 316
Part V Economic growth......Page 321
14.1 Introduction......Page 323
14.2.1 Households......Page 325
14.2.2 Firms......Page 327
14.2.3 Market structure: entry......Page 328
14.3 Growth through variety expansion......Page 329
14.3.1 Special case i (Dynamic Dixit–Stiglitz model): Phi = GL = 0......Page 331
14.3.2 Special case ii (semi-endogenous growth): 0 < Phi < 1, GL > 0......Page 332
14.3.3 Special case iii (‘endogenous growth’): Phi =1, GL = 0......Page 334
14.4 Growth through in-house R&D......Page 335
14.5 Growth with variety expansion and in-house R&D......Page 340
14.6 Conclusions......Page 345
REFERENCES......Page 346
15.1 Introduction......Page 348
15.2.1 Structure of the model......Page 351
15.2.2 Consumer and firm behaviour......Page 352
15.2.3 Semi-reduced model......Page 354
15.3.1 Balanced trade......Page 357
15.3.2 Capital mobility......Page 359
15.4 How does monopolistic competition affect convergence?......Page 361
15.5.1 Welfare calculus......Page 365
15.5.2 Cross-country welfare differences......Page 366
15.5.3 The gains from capital mobility......Page 367
15.6 Conclusions......Page 368
APPENDIX......Page 369
REFERENCES......Page 370
16.1 Introduction......Page 372
16.2 The model......Page 374
16.2.1 The final goods sector......Page 375
16.2.2 The capital production sector......Page 378
16.3 Solution of the model......Page 379
16.4.1 The effects of complementarity......Page 383
16.4.2 The effects of learning-by-using......Page 385
16.5 Conclusion......Page 386
REFERENCES......Page 387
Part VI Macroeconomics......Page 389
17.2 A theory structure......Page 391
17.2.1 Firms......Page 392
17.2.2 Households......Page 393
17.2.3 Equilibrium and its properties......Page 394
17.3.1 Fixed product space......Page 395
Household optimisation......Page 396
Firm optimisation......Page 398
Equilibrium analysis......Page 399
Quantitative results......Page 400
17.3.2 Product space variation......Page 402
17.4 Policy implications......Page 403
The multiplier with imperfect competition......Page 404
Stochastic growth model with government spending shocks and imperfect competition......Page 406
Menu costs: theory and quantitative evidence......Page 409
Monetary non-neutrality......Page 410
Monetary policy......Page 411
REFERENCES......Page 412
18.1 Introduction......Page 415
18.2 The model......Page 418
18.2.1 Product markets......Page 419
18.2.2 Technology and innovation......Page 420
18.3 Partial equilibrium model: appropriability......Page 422
18.4 General equilibrium model: downsizing......Page 424
18.4.1 Labour market......Page 425
18.5 Concluding remarks......Page 429
APPENDIX......Page 430
REFERENCES......Page 431
19.1 Introduction......Page 433
19.2.2 Final goods......Page 436
19.2.3 Intermediate goods......Page 437
19.2.4 Start-up investment......Page 440
19.3.1 Aggregation......Page 442
19.3.2 Intertemporal equilibrium......Page 445
19.4 Social optimum......Page 449
19.4.1 Investment at the intensive margin......Page 451
19.4.2 Investment at the extensive margin......Page 452
19.5 Conclusions......Page 454
APPENDIX......Page 455
REFERENCES......Page 456
20.1 Introduction......Page 458
20.2.1 Households......Page 460
20.2.2 Foreign sector......Page 464
20.2.3 Firms......Page 465
20.2.5 Equilibrium and stability......Page 466
20.3 Macroeconomic effects of industrial policy......Page 470
20.3.1 Model solution......Page 471
20.3.2 Product subsidy......Page 472
Overlapping-generations model…......Page 473
Overlapping-generations model (r = Alpha )......Page 475
Representative-agent model......Page 477
20.3.3 Import tariff......Page 478
20.4 Welfare effects of industrial policy......Page 483
20.5 Conclusions......Page 488
APPENDIX......Page 489
Model solution......Page 490
Specific shocks......Page 491
Impact effects......Page 492
Transitional dynamics......Page 493
Instrument complementarity......Page 497
REFERENCES......Page 498
Index......Page 501