A recent literature has provided empirical evidence that markups are increasing and are heterogeneous across firms. In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model of monopolistic competition...

Measures of welfare changes - either the equivalent or compensating variation of a price increase for a good - are often calculated using the expenditure function from an estimated demand. If the regression errors are due to unobserved preference heterogeneity, then then the estimated demand is...

We prove that the change in welfare of a representative consumer is summarized by the current and expected future values of the standard Solow productivity residual. The equivalence holds if the representative household maximizes utility while taking prices parametrically. This result justifies...