Preferences, entry, and market structure

We provide a unified approach to imperfect (monopolistic, Bertrand, and Cournot) competition when preferences are symmetric over a finite but endogenous number of goods. Markups depend on the Morishima elasticity of substitution and on the number of varieties. The comparative statics of free-entry equilibria is examined, establishing the conditions for markup neutrality with respect to income, market size, and productivity. We compare endogenous and optimal market structures for several non-CES examples. With a generalized linear direct utility, the markup can be constant and optimal under monopolistic competition, and nonmonotonic in the number of firms under Bertrand or Cournot competition.