英文-MonopolisticCompetitionWithOutsideGoods.docVIP

Monopolistic Competition With Outside Goods 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 properties. First, demand curves are kinked, although firms make Nash conjectures. 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. 1.Introduction The Chamberlinian zero-profit monopolisitically competitive equilibrium has been explored and extended in a number of recent papers .These analyses have focused on the monopolistically competitive industry and have paid only cursory attention to the existence of an industry outside the Chamberlinian group. In this paper, a model of spatial competition is analyzed 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 properties. First, demand curves are kinked, even though firms make Nash conjectures. If equilibrium is a tangency solution away from the kink, the short- and long-run responses to parameter changes are conventional. However, 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. Interpreting the cost increase as an excise tax, this result states that the incidence of the tax is negative. I