Economics Dictionary of ArgumentsHome
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| Monopolistic competition: Monopolistic competition in economics is a market structure where many firms sell similar but differentiated products. Each firm has some control over pricing due to product differentiation, but there is significant competition. Barriers to entry are low, allowing new firms to enter the market. Examples include restaurants, clothing brands, and electronics, where products are not identical but serve similar functions. See also Monopolies, Monopoly price, Oligopolies, Competition._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Robert C. Feenstra on Monopolistic Competition - Dictionary of Arguments
Feenstra I 5-1 Monopolistic competition/international trade/Feenstra: (…) an expansion by some firms seems to suggest that others will need to exit the market entirely. So we need a model to sort out these various effects. The model that is most suited to this purpose is one of monopolistic competition: a market with a large number of firms, each producing a unique variety of a differentiated product, with freedom of entry and exit. This model dates back to Edward Chamberlin (1936)(1) and Joan Robinson (1933)(2) who presented graphical analyses. The widespread use of this model had to wait for a mathematical formulation, however, which was achieved by Lancaster (1975(3), 1979(4)), Spence (1976(5)), and Dixit and Stiglitz (1977)(6). Lancaster presented a model in which consumers differed in their “ideal variety” of a differentiated good. Feenstra I 5-2 In constrast, Spence and Dixit and Stiglitz had a single representative consumer demanding many varieties of the differentiated good, in what is called the “love of variety” approach. Lancaster (1980)(7) and Helpman (1981)(8) applied the “ideal variety” approach to international trade, while Krugman (1979(9),1980(10),1981(11)) applied the “love of variety” approach due to Dixit and Stiglitz. The comprehensive treatment by Helpman and Krugman (1985)(12) shows that these two approaches lead to very similar results, so we will use the simpler “love of variety” approach. We begin by describing the model of Krugman (1979)(9). 1. Chamberlin, Edward, 1936, The Theory Of Monopolistic Competition: A Re-Orientation Of The Theory Of Value. Cambridge, Harvard University Press. 2. Robinson, Joan, 1933, The Economics of Imperfect Competition. London, Macmillan. 3. Lancaster, Kelvin, 1975, “Socially Optimal Product Differentiation,” American Economic Review, September, 65, 567-585. 4. Lancaster, Kelvin, 1979, Variety, Equity and Efficiency. New York: Columbia University Press. 5. Spence, Michael, “Product Selection, Fixed Costs, and Monopolistic Competition,” Review of Economic Studies, 43(2), June 1976, 217-235. 6. Dixit, Avinash K. and Joseph E. Stiglitz, 1977 “Monopolistic Competition and Optimum Product Diversity,” American Economic Review, 67(3), June, 297-308. 7. Lancaster, Kelvin, 1980, “Intra-Industry Trade under Perfect Monopolistic Competition,” Journal of International Economics, 10, May, 151-175. 8. Helpman, Elhanan, 1981, “International Trade in the Presence of Product Differentiation, Economics of Scale and Monopolistic Competition: A Chamberlin-Heckscher-Ohlin Approach,” Journal of International Economics, 11, 305-340. 9. Krugman, Paul R., 1979, “Increasing Returns, Monopolistic Competition and International Trade,” Journal of International Economics, 9, 469-479. Reprinted in Edward, E. Leamer, 2001, ed., International Economics, New York: Worth Publishers, 255-265. 10. Krugman, Paul R., 1980, “Scale Economies, Product Differentiation, and the Pattern of Trade,” American Economic Review, 70, December, 950-959. Reprinted as chapter 11 in Gene M. Grossman, ed., 1992, Imperfect Competition and International Trade, Cambridge: MIT Press, 203-216. 11. Krugman, Paul R., 1981, “Intra-Industry Specialization and the Gains from Trade,” Journal of Political Economy, 89, 959-973. 12. Helpman, Elhanan and Paul R. Krugman, 1985, Market Structure and Foreign Trade. Cambridge: MIT Press._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Feenstra I Robert C. Feenstra Advanced International Trade University of California, Davis and National Bureau of Economic Research 2002 |
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