Dixit-Stiglitz-Krugman Model with Nonlinear Costs
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We study the market equilibrium in international trade monopolistic competition model a‘la Dixit-Stiglitz-Krugman with homogeneous firms. The utility of consumers are additive separable. Transport costs are of “iceberg type.” The only production factor is labor. The concrete functional form of sub-utility function is assumed unknown. Thus, it is not possible to get the equilibrium in closed form. We examine the local symmetric comparative statics of consumption, prices, firms masses and firms sizes with respect to transport costs. For linear production costs, the results about equilibria near free trade and autarky are known. We show that many of these results are true for the case of non-linear production costs.
KeywordsDixit-Stiglitz-Krugman Model Market equilibrium Free trade Autarky Comparative statics
The authors are very grateful to the anonymous reviewers for very useful suggestions for improving the text. The study was carried out within the framework of the state contract of the Sobolev Institute of Mathematics (project no. 0314-2019-0018). The work was supported in part by the Russian Foundation for Basic Research, projects 18-010-00728 and 19-010-00910 and by the Russian Ministry of Science and Education under the 5-100 Excellence Programme.
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