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Monopoly Power and Endogenous Product Variety: Distortions and Remedies / Florin O. Bilbiie, Fabio Ghironi, Marc J. Melitz.
- Format:
- Book
- Author/Creator:
- Bilbiie, Florin O.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w14383.
- NBER working paper series no. w14383
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Monopoly Power and Endogenous Product Variety
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2008.
- Summary:
- The inefficiencies related to endogenous product creation and variety under monopolistic competition are two-fold: one static--the misalignment between consumers and producers regarding the value of a new variety; and one dynamic--time variation in markups. Quantitatively, the welfare costs of the former are potentially very large relative to the latter. For a calibrated version of our model with these distortions, their total cost amounts to 2 percent of consumption. Appropriate taxation schemes can implement the optimum amount of entry and variety. Elastic labor introduces a further distortion that should be corrected by subsidizing labor at a rate equal to the markup for goods, in order to preserve profit margins and hence entry incentives.
- Notes:
- Print version record
- October 2008.
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