American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Not So Demanding: Demand Structure and Firm Behavior
American Economic Review
vol. 107,
no. 12, December 2017
(pp. 3835–74)
Abstract
We show that any well-behaved demand function can be represented by its "demand manifold," a smooth curve that relates the elasticity and convexity of demand. This manifold is a sufficient statistic for many comparative statics questions; leads naturally to characterizations of new families of demand functions that nest most of those used in applied economics; and connects assumptions about demand structure with firm behavior and economic performance. In particular, the demand manifold leads to new insights about industry adjustment with heterogeneous firms, and can be empirically estimated to provide a quantitative framework for measuring the effects of globalization.Citation
Mrázová, Monika, and J. Peter Neary. 2017. "Not So Demanding: Demand Structure and Firm Behavior." American Economic Review 107 (12): 3835–74. DOI: 10.1257/aer.20160175Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- F12 Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms