TY - BOOK ID - 138091622 TI - Monopoly Power and Endogenous Product Variety : Distortions and Remedies AU - Bilbiie, Florin O. AU - Ghironi, Fabio. AU - Melitz, Marc J. AU - National Bureau of Economic Research. PY - 2008 PB - Cambridge, Mass. National Bureau of Economic Research DB - UniCat UR - https://www.unicat.be/uniCat?func=search&query=sysid:138091622 AB - The inefficiencies related to endogenous product creation and variety under monopolistic competition are two-fold: one static--the misalignment between consumers and producers regarding the value of a new variety; and one dynamic--time variation in markups. Quantitatively, the welfare costs of the former are potentially very large relative to the latter. For a calibrated version of our model with these distortions, their total cost amounts to 2 percent of consumption. Appropriate taxation schemes can implement the optimum amount of entry and variety. Elastic labor introduces a further distortion that should be corrected by subsidizing labor at a rate equal to the markup for goods, in order to preserve profit margins and hence entry incentives. ER -