6533b872fe1ef96bd12d2ca5

RESEARCH PRODUCT

General Equilibrium Models of Monopolistic Competition: CRRA Versus CARA

Kristian BehrensKristian BehrensYasusada Murata

subject

Monopolistic competitionClass (set theory)General equilibrium theoryYield (finance)EconomicsConstant absolute risk aversionLarge groupMathematical economics

description

We analyze a class of "large group" Chamberlinian monopolistic competition models using multiplicatively quasi-separable (MQS) and additively quasi-separable (AQS) functions. We first prove that the MQS and AQS functions are equivalent to the "constant relative risk aversion" (CRRA) and "constant absolute risk aversion" (CARA) classes of functions, respectively. Whereas both approaches allow for closed-form solutions, only the AQS functions yield profit-maximizing prices that decrease in the mass of competing firms. We then characterize the equilibrium in both cases and discuss some possible applications of the AQS framework to trade, growth, and development.

yearjournalcountryeditionlanguage
2005-01-01SSRN Electronic Journal
https://doi.org/10.2139/ssrn.847724