# Dynamic monopolistic competition with sluggish adjustment of entry and exit

## TL;DR

This paper analyzes a monopolistic competition model with sluggish entry and exit, showing how different solution concepts affect the steady state number of firms under general demand and cost functions.

## Contribution

It introduces a differential game approach to model sluggish adjustment in entry and exit, revealing differences between open-loop and closed-loop steady states.

## Key findings

- Open-loop steady state has fewer firms than static equilibrium.
- Closed-loop steady state can have more firms than open-loop.
- Steady state firm numbers vary with adjustment speed and solution concept.

## Abstract

We study a steady state of a free entry oligopoly with differentiated goods, that is, a monopolistic competition, with sluggish adjustment of entry and exit of firms under general demand and cost functions by a differential game approach. Mainly we show that the number of firms at the steady state in the open-loop solution of monopolistic competition is smaller than that at the static equilibrium of monopolistic competition, and that the number of firms at the steady state of the memoryless closed-loop monopolistic competition is larger than that at the steady state of the open-loop monopolistic competition, and may be larger than the number of firms at the static equilibrium.