Monopolistic competition and optimum product diversity under firm heterogeneity

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Empirical work has drawn attention to the high degree of productivity differences within industries and their role in resource allocation. This paper examines the allocational efficiency of such markets. Productivity differences introduce two new margins of potential inefficiency: selection of the right distribution of firms and allocation of the right quantities across firms. We show that these considerations affect welfare and policy analysis, and market power across firms leads to distortions in resource allocation. Demand-side elasticities determine how resources are misallocated and when increased competition from market expansion provides welfare gains.

Keywords: efficiency; productivity; social welfare; demand elasticity; markups (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-02-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-tid
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Citations: View citations in EconPapers (90)

Published in Journal of Political Economy, 1, February, 2019, 127(1), pp. 196 - 232. ISSN: 0022-3808

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http://eprints.lse.ac.uk/59226/ Open access version. (application/pdf)

Related works:
Journal Article: Monopolistic Competition and Optimum Product Diversity under Firm Heterogeneity (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:59226

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