Industry equilibrium and welfare in monopolistic competition under uncertainty
This paper offers a new theory that describes the influence of uncertainty on economic fundamentals. This theory posits that uncertainty can improve social welfare. We argue that in an economy, where spending of the customers for the differentiated good correlates with larger substitutability of its varieties, the equilibrium output decreases and the prices increase when uncertainty appears. Alternatively, if such spending and substitutability anti-correlate, the predictions for the price and output changes are reversed. The arguments are based on general equilibrium modeling with the monopolistic competition of firms which produce varieties of the differentiated good under limited information regarding the consumer demand. The impact of uncertainty on the equilibrium is assessed by using the relationship between the weighted elasticity of substitution between varieties, the elasticity of the consumer utility, and the income share spent on the differentiated good.
2020
2021-03-22 11:20:26
1033
monopolistic competition, uncertain demand, general utility, consumer welfare
Alexander
Shapoval
70
V. M.
Goncharenko
70
COBISS_ID
3
56699651
UDK
4
33
ISSN pri Ĩlanku
9
0931-8658
DOI
15
10.1007/s00712-019-00687-3
NUK URN
18
URN:SI:UNG:REP:HWZ6KC6N
Shapoval_Goncharenko.pdf
560193
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