Technology, Market Competitiveness and Welfare

This paper analyzes the effects of technology differences on market competitiveness and welfare. In a monopolistic competitive model, where the firms are heterogeneous in terms of their productivity, it is assumed that different regions have different technology levels and this study investigates the role of these differences on market competitiveness. Market competitiveness is measured by two concepts. First, the relation between the technology and the number of firms in the market is analyzed and second average markups are calculated for different regions with different techonlogy levels. I find that in the regions with relatively higher technology, i) the number of firms who are operating is higher, ii) the average mark-up values are lower. By using the positive relation between the technology level and market competitiveness, it is also shown that in a more competitive region welfare is higher. Moreover, the government can affect the market competitiveness and welfare by the techonogy investment.