Working Paper: CEPR ID: DP14133
Authors: Monika Mrzov; Peter Neary
Abstract: We provide an overview and synthesis of recent work on models of monopolistic competition with heterogeneous firms in international trade, paying particular attention to competition effects, pass-through, selection effects, and linking distributions of firm characteristics and outcomes. A recurring theme is that CES preferences are extremely convenient for deriving analytic results, but also extremely restrictive in their theoretical and empirical implications. We introduce the class of "constant-response demand functions" to describe some related families of demand functions that provide a unifying principle for much recent work that explores alternatives to CES demands.
Keywords: heterogeneous firms; passthrough; quantifying effects of globalization; super and subconvexity; supermodularity
JEL Codes: F12; L11; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competition effects (L13) | elasticity of demand (D12) |
| CES preferences (L63) | competition effects (L13) |
| demand subconvexity (D11) | competition effects (L13) |
| globalization (F60) | market size (L25) |
| globalization (F60) | competition (L13) |
| market size + competition (L25) | firm profitability (L21) |
| productivity (O49) | sales distributions (D39) |
| demand conditions (R22) | distribution of firm characteristics (L25) |