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Monopolistic Competition with GAS Preferences

Author

Listed:
  • Paolo Bertoletti

    (Department of Economics and Management, University of Pavia)

  • Federico Etro

    (Ca' Foscari University, University of Florence and C.R.A.)

Abstract

We study monopolistic competition equilibria with free entry under symmetric Generalized Additively Separable preferences, whose demand systems feature a single aggregator of prices or quantities. They include Gorman-Pollak preferences (which nest directly and indirectly additive preferences, a homothetic family and other preferences) and implicit CES preferences. With heterogeneous ?rms our extension of the Melitz model produces a variety of pricing and selection effects, and allows us to solve the social planner problem. We illustrate the inefficiency of the market equilibrium for a new speci?cation of generalized translated power preferences, and show its optimality for the entire class of implicit CES preferences.

Suggested Citation

  • Paolo Bertoletti & Federico Etro, 2018. "Monopolistic Competition with GAS Preferences," DEM Working Papers Series 165, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0165
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    File URL: http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0165.pdf
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    Citations

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    Cited by:

    1. Paolo Bertoletti & Federico Etro & Ina Simonovska, 2018. "International Trade with Indirect Additivity," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 1-57, May.
    2. Paolo Bertoletti & Federico Etro, 2022. "Monopolistic competition, as you like it," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 293-319, January.
    3. Cavallari, Lilia & Etro, Federico, 2020. "Demand, markups and the business cycle," European Economic Review, Elsevier, vol. 127(C).
    4. Federico Etro, 2018. "Macroeconomics with Endogenous Markups and Optimal Taxation," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 378-406, October.
    5. Etro, Federico, 2019. "Monopolistic competition for the market with heterogeneous firms," Economics Letters, Elsevier, vol. 179(C), pages 9-12.
    6. Macedoni, Luca & Weinberger, Ariel, 2022. "Quality heterogeneity and misallocation: The welfare benefits of raising your standards," Journal of International Economics, Elsevier, vol. 134(C).
    7. Luca Macedoni & Ariel Weinberger, 2021. "Quality Misallocation, Trade, and Regulations," CESifo Working Paper Series 9041, CESifo.

    More about this item

    Keywords

    Monopolistic competition; GAS preferences; Heterogeneous fi?rms;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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