Oligopolistic vs. monopolistic competition: do intersectoral effects matter?

Recent extensions of the standard Dixit–Stiglitz (Am Econ Rev 67:297–308, 1977) model, that go beyond the CES sub-utility assumption while maintaining monopolistic competition, have mainly emphasized the role of intrasectoral substitutability. We argue that introducing oligopolistic competition can be an alternative extension, still tractable, allowing to restore the role of intersectoral substitutability and reinforcing the general equilibrium dimension of the model. For this purpose, we define a comprehensive concept of oligopolistic equilibrium to give account of a large set of competition regimes with varying competitive toughness. For two particular regimes, price competition and quantity competition, we show how, with strategic interactions, pro-competitive or anti-competitive effects now depend on the intersectoral elasticity of substitution as compared to the intrasectoral elasticity of substitution.