Author(s):	Monika Mrázová, J Peter Neary
Publication Date:	November 2019
Keyword(s):	Heterogeneous Firms, Pass-Through, Quantifying Effects of Globalization, Super- and Sub-Convexity, Supermodularity
JEL(s):	F12, F23, L11
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14133

We provide an overview and synthesis of recent work on models of monopolistic competition with heterogeneous firms in international trade, paying particular attention to competition effects, pass-through, selection effects, and linking distributions of firm characteristics and outcomes. A recurring theme is that CES preferences are extremely convenient for deriving analytic results, but also extremely restrictive in their theoretical and empirical implications. We introduce the class of "constant-response demand functions" to describe some related families of demand functions that provide a unifying principle for much recent work that explores alternatives to CES demands.