Feb 2019 | 868

Authors: Peter Neary Monika Mrázová

We provide an overview and synthesis of recent work on models of monopolistic competition with heterogeneous firms in international trade, paying particular atten¬tion to pass-through, selection effects, competition effects, and matching endogenous with exogenous distributions. A recurring theme is that CES preferences are extremely convenient for deriving analytic results, but also extremely restrictive in their theoret-ical and empirical implications. We introduce the class of “constant-response demand functions” to describe some related families of demand functions that provide a unifying principle for much recent work that explores alternatives to CES demands.

JEL Codes: F12, L11, F23

Keywords: Heterogeneous Firms; Pass-Through; Quantifying Effects of Globalization; Super- and Sub-Convexity; Supermodularity

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