In the Dixit-Stiglitz model of monopolistic competition the effects ofindividual pricing decisions on the aggregate price index are neglected.This paper studies the implications of this approximation in terms of theefficiency of macroeconomic equilibria. We show that allowing for theprice-index effect, makes the degree of inefficiency positively correlatedwith the number of agents; it also reduces the scope for New Keynesianoutcomes, such as price rigidity and multiple equilibria.