Price-cost margins and firm size under monopolistic competition: The case of IES preferences

Bertoletti, Paolo; Fumagalli, Eileen; Poletti, Clara

doi:10.1016/j.rie.2017.08.001

Research in Economics

2017

DOI: 10.1016/j.rie.2017.08.001

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Price-cost margins and firm size under monopolistic competition: The case of IES preferences

Paolo Bertoletti

Eileen Fumagalli²,

Clara Poletti³

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Cited by 9 publications

(1 citation statement)

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“…In Melitz and Ottaviano () and Behrens, Mion, Murata, and Südekum (), more productive firms charge higher markups that are decreasing in market size. For the case of “increasing elasticity of substitution” preferences, where markups increase with market size, see Bertoletti, Fumagalli, and Poletti () and Zhelobodko et al. ().…”

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Market size, occupational self‐selection, sorting, and income inequality

Behrens

Pokrovsky

Zhelobodko

2017

Journal of Regional Science

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We develop a monopolistic competition model with heterogeneous agents who self‐select into occupations (entrepreneurs and workers) depending on innate ability. The effect of market size on the equilibrium occupational structure crucially hinges on properties of the lower tier utility function—its scale elasticity and relative love‐for‐variety. When combined with the underlying ability distribution, the share of entrepreneurs and income inequality can increase or decrease with market size. When extended to allow for the endogenous sorting of mobile agents between cities, numerical examples suggest that sorting may increase inequality within and between cities.

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Market size, occupational self‐selection, sorting, and income inequality

Behrens

Pokrovsky

Zhelobodko

2017

Journal of Regional Science

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Macroeconomics with Endogenous Markups and Optimal Taxation

Etro¹

2018

Southern Economic Journal

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I augment a flexible price dynamic general equilibrium model with any symmetric intratemporal preferences over a variety of goods supplied under monopolistic, Bertrand, or Cournot competition to derive implications for business cycle and market inefficiencies. Endogenous markups can magnify the impact of shocks on consumption and labor supply through intertemporal substitution mechanisms, and the optimal fiscal policy requires a variable labor income subsidy and a capital income tax that converges to zero in the long run. With an endogenous number of goods and strategic interactions, entry also affects markups and the optimal fiscal policy requires also a tax on profits. I characterize equilibrium and efficient market structures and derive optimal tax rules for a variety of preferences, including a new type of general additive preferences that nest direct, indirect, implicit, and homothetic additivity.

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Monetary policy and consumers' demand

Cavallari

2020

Economic Modelling

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Price-cost margins and firm size under monopolistic competition: The case of IES preferences

Cited by 9 publications

References 14 publications

Market size, occupational self‐selection, sorting, and income inequality

Market size, occupational self‐selection, sorting, and income inequality

Macroeconomics with Endogenous Markups and Optimal Taxation

Monetary policy and consumers' demand

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