TY - JOUR
T1 - On monopolistic competition and optimal product diversity
T2 - Workers' rents also matter
AU - Picard, P.M.
AU - Toulemonde, E.
N1 - Copyright 2009 Elsevier B.V., All rights reserved.
PY - 2009/11/1
Y1 - 2009/11/1
N2 - In the Dixit-Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that workers' rents also contribute to explain excess entry through a general equilibrium mechanism. Larger wages indeed raises the aggregate earnings and firms sales and profits, which entices too many firms to enter. We discuss the possibility of over-provision of varieties by comparing the equilibrium to unconstrained and constrained social optima and to other regulatory frameworks where wages are not controlled. © Canadian Economics Association.
AB - In the Dixit-Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that workers' rents also contribute to explain excess entry through a general equilibrium mechanism. Larger wages indeed raises the aggregate earnings and firms sales and profits, which entices too many firms to enter. We discuss the possibility of over-provision of varieties by comparing the equilibrium to unconstrained and constrained social optima and to other regulatory frameworks where wages are not controlled. © Canadian Economics Association.
UR - http://www.scopus.com/inward/record.url?scp=70350423886&partnerID=8YFLogxK
U2 - 10.1111/j.1540-5982.2009.01553.x
DO - 10.1111/j.1540-5982.2009.01553.x
M3 - Article
VL - 42
SP - 1347
EP - 1360
JO - Canadian Journal of Economics
JF - Canadian Journal of Economics
ER -