We develop the logit model of monopolistic competition. We show that a fundamental distribution of quality-costs generates an endogenous economic distribution of firm size (output or profit). An exponential (resp. normal) distribution generates a Pareto (resp. log-normal) economic size distribution. We find the long-run equilibrium distribution as a function of the primitives: consumer taste for variety, entry costs, and the natural distribution of quality-costs in the entrepreneur population. We investigate long-tail effects, and show how the head and tail of the economic distribution depend on the technological primitives. The Logit delivers a constant absolute mark-up property, which compares to the constant relative mark-up property of the CES model. The CES is currently the mainstay of empirical trade models: the Logit is a viable alternative.

(joint work with Simon P. Anderson)