Changes
Jump to navigation
Jump to search
Salop (1979) - Monopolistic Competition With Outside Goods (view source)
Revision as of 20:13, 4 April 2010
, 20:13, 4 April 2010New page: ==Reference(s)== *Salop (1979), "Monopolistic competition with outside goods", Bell Journal of Economics 10, 141-156. [http://www.edegan.com/pdfs/Salop%20(1979)%20-%20Monopolistic%20compet...
==Reference(s)==
*Salop (1979), "Monopolistic competition with outside goods", Bell Journal of Economics 10, 141-156. [http://www.edegan.com/pdfs/Salop%20(1979)%20-%20Monopolistic%20competition%20with%20outside%20goods.pdf pdf]
==Abstract==
The Chamberlinian monopolistically competitive equilibrium has been explored and extended in a number of recent papers. These analyses have paid only cursory attention to the existence of an industry outside the Chamberlinian group. In this article I analyze a model of spatial competition in which a second commodity is explicitly treated. In this two-industry economy, a zero-profit equilibrium with symmetrically located firms may exhibit rather strange prop- erties. First, demand curves are kinked, although firms make "Nash" conjec- tures. If equilibrium lies at the kink, the effects of parameter changes are perverse. In the short run, prices are rigid in the face of small cost changes. In the long run, increases in costs lower equilibrium prices. Increases in market size raise prices. The welfare properties are also perverse at a kinked equilibrium.
*Salop (1979), "Monopolistic competition with outside goods", Bell Journal of Economics 10, 141-156. [http://www.edegan.com/pdfs/Salop%20(1979)%20-%20Monopolistic%20competition%20with%20outside%20goods.pdf pdf]
==Abstract==
The Chamberlinian monopolistically competitive equilibrium has been explored and extended in a number of recent papers. These analyses have paid only cursory attention to the existence of an industry outside the Chamberlinian group. In this article I analyze a model of spatial competition in which a second commodity is explicitly treated. In this two-industry economy, a zero-profit equilibrium with symmetrically located firms may exhibit rather strange prop- erties. First, demand curves are kinked, although firms make "Nash" conjec- tures. If equilibrium lies at the kink, the effects of parameter changes are perverse. In the short run, prices are rigid in the face of small cost changes. In the long run, increases in costs lower equilibrium prices. Increases in market size raise prices. The welfare properties are also perverse at a kinked equilibrium.
