The efficiency of monopolistically competitive equilibria in large economies: Commodity differentiation with gross substitutes |
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| Affiliation: | 1. University of Twente, School of Engineering Technology, Department of Civil Engineering and Management, The Netherlands;2. University of Twente, School of Behavioural, Management and Social Sciences, Department of Technology Management and Supply, PO Box 217, Enschede 7500 AE, The Netherlands |
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| Abstract: | A general model of commodity differentiation is developed using two different approaches to the theory of demand. It is shown that a local version of Bertrand's argument holds under reasonable conditions. If all commodities are sustitutes and sunk costs are small, there is never too little commodity differentiation relative to the optimum. Under the same conditions, monopolistically competitive equilibria are approximately perfectly competitive if the optimal collection of commodities is sufficiently rich. |
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