Decoupling the CES Distribution Circle with Quality and Beyond

Equilibrium Distributions and the CES-Logit Nexus

Bibliographic Data

ID9720716
AuthorsSimon P Anderson (0000-0002-0161-8975, University of Virginia), André De Palma (0000-0001-5516-5708, ENS Paris-Saclay, CREST)
Year2020
Volume130
Issue628
Pages911-936
Publication date2020-05-01
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (PUBLISHER • GB)
DOI10.1093/ej/ueaa001
OpenAlexW3007079525
LanguageEN
References cited26

We show for CES demands with heterogeneous productivities that profit, revenue and output distributions lie in the same closed power family as the productivity distribution (e.g., the ‘Pareto circle’). The price distribution lies in the inverse power family. Equilibrium distribution shapes are linked by linear relations between their density elasticities. Introducing product quality decouples the CES circle, and reconciles Pareto price and Pareto sales revenue distributions. We use discrete choice underpinnings to find variable mark-ups for a more flexible demand formulation bridging CES to logit and beyond. For logit demand, exponential (resp. normal) quality-cost distributions generate Pareto (log-normal) economic size distributions

Decoupling (probability · Demand curve · Distribution (mathematics · Econometrics · Economics · Inverse demand function · Logit · Mathematical economics · Microeconomics · Pareto distribution · Pareto principle · Statistics · Consumer Market Behavior and Pricing · Economics of Agriculture and Food Markets · Global trade and economics · Mathematics

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