We study cartel stability in a differentiated price-setting duopoly with returns to scale. We show that a cartel may be equally stable in the presence of lower differentiation, provided that the decreasing returns parameter is high. In addition we demonstrate that for a given factor of discount,...

We stress some efficiency aspects of monopolistic competition justifying it on account of its tendency to innovate and the questionable excess capacity paradigm. Some further efficiency aspects revealed are product variety and transaction cost savings. We view the monopolistically competitive...

We show that even in the absence of diminishing returns in production and technological spillovers, international trade leads to a stable world income distribution. This is because specialization and trade introduce de facto diminishing returns: Countries that accumulate capital faster than...

This paper constructs a growth model in which monopolistically competing firms choose the characteristic of their own product from an unbounded product space. While consumers wish to satisfy various needs by purchasing a diverse range of goods, production costs are lower for those goods that are...

We develop a model of vertical innovation in which firms incur a market entry cost and choose a unique level of quality. Once established, firms compete for market shares, selling to consumers with heterogeneous tastes for quality. The equilibrium of the pricing game exists and is unique within...

We analyze the social optimality of growth and product variety in a model of endogenous growth. The model contains two sectors, one assembly sector producing a homogenous consumption good, and one intermediate goods sector producing a differentiated input used in the assembly sector. Growth...