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    Monopolistic competition and optimum product diversity under firm heterogeneity

    Dhingra, S. and Morrow, John (2019) Monopolistic competition and optimum product diversity under firm heterogeneity. Journal of Political Economy 127 (1), pp. 196-232. ISSN 0022-3808.

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    Abstract

    Empirical work has drawn attention to the high degree of productivity differences within industries, and its 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 impact 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.

    Metadata

    Item Type: Article
    Keyword(s) / Subject(s): Efficiency, Productivity, Social welfare, Demand elasticity, Markups
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 26 Mar 2018 06:35
    Last Modified: 10 Jan 2020 11:45
    URI: http://eprints.bbk.ac.uk/id/eprint/21868

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