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Monopolistic Competition, Nonhomotheticity, and the Stability of the Chamberlinian Tangency Solution

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  • Chao, Chi-Chur
  • Takayama, Akira

Abstract

The focal point in the recent literature on international trade and monopolistic competition is to recast the Chamberlinian partial equilibrium theory in a general equilibrium framework. Using a similar setting, this paper asks whether the Chamberlinian tangency solution is stable under general equilibrium. Paradoxical results follow. When entry occurs, profit per firm can increase and the tangency solution can be unstable. A necessary and sufficient condition for stability is obtained. The concepts of average and marginal factor intensities play an important role in obtaining the stability. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Chao, Chi-Chur & Takayama, Akira, 1990. "Monopolistic Competition, Nonhomotheticity, and the Stability of the Chamberlinian Tangency Solution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 73-86, February.
    • Handle: RePEc:ier:iecrev:v:31:y:1990:i:1:p:73-86
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    Cited by:

    1. Schweinberger, A.G. & Woodland, A.D., 2015. "Entrepreneurship and conflict generating product price changes," European Economic Review, Elsevier, vol. 78(C), pages 158-174.
    2. By Albert G. Schweinberger & Jens Suedekum, 2015. "De-industrialization and entrepreneurship under monopolistic competition," Oxford Economic Papers, Oxford University Press, vol. 67(4), pages 1174-1185.
    3. Joseph F. Francois & Douglas Nelson, 2002. "A Geometry Of Specialisation," Economic Journal, Royal Economic Society, vol. 112(481), pages 649-678, July.
    4. Hiroshi Goto, 2015. "Inter-Industrial Factor Allocation in the Short and Long Runs in Chamberlinian Monopolistic Competition," Discussion Paper Series DP2015-36, Research Institute for Economics & Business Administration, Kobe University.
    5. Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    6. Cheng-wei Chang & Ching-chong Lai & Ting-wei Lai, 2020. "Fiscal stimulus in a simple macroeconomic model of monopolistic competition with firm heterogeneity," The Japanese Economic Review, Springer, vol. 71(3), pages 447-477, July.
    7. Cheng-wei Chang & Ting-wei Lai, 2024. "Government spending and monopolistic competition with heterogeneous firm productivity," Journal of Economics, Springer, vol. 141(2), pages 101-135, March.

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