Working Paper: CEPR ID: DP1328
Authors: Simon P. Anderson; Andre de Palma
Abstract: We introduce a framework that has known models of oligopolistic competition with differentiated products (the circle and the constant elasticity of substitution (CES)) as limit cases. This integrative approach incorporates both localized and global competition, as well as price-sensitive individual demands. It is used to consider the qualitative impact of major changes over the last two centuries: reduction in transport costs, increased taste for variety, population growth, and use of technologies with greater returns to scale. We work out the properties of an extended Chamberlinian model that should be useful both in industrial organization and urban economics.
Keywords: localized competition; global competition; monopolistic competition; product differentiation; CES; logit
JEL Codes: D43; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transport costs (L91) | effective variety (L15) |
| effective variety (L15) | competition among firms (L13) |
| competition among firms (L13) | real prices (P22) |
| competition among firms (L13) | firm size (L25) |
| consumer preference for variety (D11) | equilibrium number of firms (D41) |
| transport costs (L91) | equilibrium number of firms (D41) |
| population growth (J11) | number of firms (L20) |
| number of firms (L20) | prices (P22) |