Working Paper: CEPR ID: DP15731
Authors: Simon P. Anderson; Andre de Palma
Abstract: We link fundamental technological and taste distributions to endogenous economic distributions of prices and firm size (output, profit) generated under monopolistic competition with heterogeneous productivities as per recent Trade and IO models. We new derive properties for monopoly pricing and equivalence properties on demand curvature, profit functions, and marginal revenue, which we use to ensure distributions of cost, price, output, and profit can be matched under monopolistic competition. Demand and one distribution determine the rest. We provide constructive proofs to recover demand and all distributions from just two (e.g., price and cost distributions uncover demand form), and derive consistency conditions that distribution pairs must satisfy. We then extend to include mark-up distributions.
Keywords: primitive distributions; monopoly; monopolistic competition; pass-through; demand recovery; markup; price; profit dispersion
JEL Codes: L13; F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| underlying distributions of tastes and technologies (D39) | distributions of costs, prices, outputs, and profits (D39) |
| cost distribution is strictly increasing and continuously differentiable (D39) | price distribution, output distribution, profit distribution (D39) |
| markup function (Y60) | demand function (C69) |
| properties of demand (D12) | equilibrium distributions (D39) |
| strictly increasing markup (D49) | strictly decreasing demand (D11) |
| certain distributions (D39) | recovery of others (H84) |