Monopolistic Competition, As You Like It

Abstract

We study imperfect and monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous …rms. We show how to compute equilibria through the Morishima elasticities of substitution. Simple pricing rules and closed-form solutions emerge under monopolistic competition when demands depend on common aggregators. This is the case for Generalized Additively Separable preferences (encompassing additive preferences and their Gorman-Pollak extensions), implicitly additive preferences and others. For applications to trade, with markups variable across goods of di¤erent quality, and to macroeconomics, with markups depending on aggregate variables, we propose speci…cations of indirectly additive, self-dual addilog and implicit CES preferences.

Integrability and Generalized Separability

“…This corresponds to self-dual addilog preferences previously examined by Houthakker (1965), Pollak (1972) and just recently by Bertoletti and Etro (2017a). With direct separability (when Using our results, one can further generalize such demand system (though only in the superconvex case where there is no restriction on minimum quantities) with more flexible income effects while keeping the CREMR properties linked to price effects.…”

Macroeconomics with Endogenous Markups and Optimal Taxation

“…For a general function of the aggregator and u U = 0, there are Gorman‐Pollak preferences , as applied to monopolistic competition in Bertoletti and Etro (, ), and featuring an elasticity ɛ( C , n ) = ɛ( ξC ). In conclusion, this more general form of additivity nests GAS preferences as well as other preferences that feature a demand system with two (implicitly well‐defined) aggregators.…”

“…These are sold under perfect competition to final goods producers that can be engaged in monopolistic, Bertrand, or Cournot competition, each one producing a single variety. The main novelties are on the demand side, where intratemporal preferences over the final goods can be any symmetric preferences, as in the static microfoundation of product differentiation developed in Bertoletti and Etro (, ). This allows the framework to nest a variety of flexible price models, including the standard neoclassical real business cycle (RBC) model with perfect competition in homogenous goods started by Kydland and Prescott (), models based on CES preferences and monopolistic competition started by Blanchard and Kiyotaki () and developed in the New‐Keynesian literature, and models with endogenous entry based on homothetic preferences (Bilbiie et al ).…”

“…In particular, while Dixit and Stiglitz () formalized monopolistic competition when the direct utility is additive, generalized separability (Gorman ) can be analyzed similarly; Benassy () has considered monopolistic competition with homothetic preferences, and Bertoletti and Etro () with an indirect utility, which is additive . Bertoletti and Etro (, ) have put together these and more general preferences in a unique framework studying equilibrium and optimal market structures, and here I use their framework to study dynamic market structures (see also Arkolakis and Morlacco , Fally , Bertoletti and Etro , Dhingra and Morrow and Arkolakis et al, for other recent works generalizing the theory of monopolistic competition in static models).…”

Monopolistic competition with generalized additively separable preferences

“…These were introduced by Gorman (1970Gorman ( , 1987 and Pollak (1972) under the name of Generalized Additively Separable (GAS) preferences, and their use for monopolistic competition is the subject of this work. Following Bertoletti and Etro (2017b), we call Gorman-Pollak preferences (henceforth GP preferences) a generalization of (1) and (2) that delivers a demand elasticity depending on the product of the own price (or consumption level) with a common aggregator. Following Hanoch (1975), we de…ne the second class of GAS preferences as implicit CES preferences: they feature an elasticity of substitution that is common across commodities, but can change through indi¤erence curves, and therefore with the utility level.…”