Discussion Paper Details

Please find the details for DP8752 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Verti-zontal Differentiation in Monopolistic Competition

Author(s): Francesco Di Comite, Jacques-François Thisse and Hylke Vandenbussche

Publication Date: January 2012

Keyword(s): heterogenous firms, horizontal differentiation, monopolistic competition, non-symmetric varieties and vertical differentiation

Programme Area(s): International Trade and Regional Economics

Abstract: The pattern of trade observed from firm-product-country data calls for a new generation of models. To address the unexplained variation in the data, we propose a new model of monopolistic competition where varieties enter preferences non-symmetrically, capturing both horizontal and vertical differentiation in an unprecedented way. Together with a variable elasticity of substitution, competition effects, varying markups and prices across countries, this results in a tractable model that rationalizes the empirical finding that firm-product quantities show systematically more variability than prices across export destinations. Accounting for unexplained data variation, our model can thus be used to improve demand identification.

For full details and related downloads, please visit:

Bibliographic Reference

Di Comite, F, Thisse, J and Vandenbussche, H. 2012. 'Verti-zontal Differentiation in Monopolistic Competition'. London, Centre for Economic Policy Research.