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Business Formation and Cyclical Markups in the French Business Cycle

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  • Franck PORTIER

Abstract

Two main aspects of the business cycle have been recently considered as important lines of research: business formation and cyclical fluctuations of markups. In an explicitly imperfect competition framework, one needs to understand how entry and exit are related to markup fluctuations, and how this may account for the effect of aggregate demand on economic activity. The paper has two different goals. The first one is to document on French data the pro-cyclicality of business formation and the counter-cyclicality of markups. The second one is to build an intertemporal stochastic general equilibrium model which gives a common explanation to these two phenomena. A first (quite simple) model is proposed, with monopolistic competition between industries and Cournot competition with free entry inside each industry. A reduced-form model of more satisfactory intertemporal behavior of firms in their entry/exit and markups decisions is then proposed, which will motivate further work to give game-theoretic micro-foundations to these intertemporal behaviors.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1995)
Issue (Month): 37-38 ()
Pages: 411-440

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Handle: RePEc:adr:anecst:y:1995:i:37-38:p:17

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Cited by:
  1. Plehn-Dujowich, Jose M., 2008. "On the counter-cyclicality of prices and markups in a Cournot model of entry," Economics Letters, Elsevier, vol. 99(2), pages 310-313, May.
  2. Fougère, Denis & Gautier, Erwan & Le Bihan, Hervé, 2008. "Restaurant Prices and the Minimum Wage," CEPR Discussion Papers 6892, C.E.P.R. Discussion Papers.
  3. Paulo Brito & Luís Costa & Huw Dixon, 2010. "Non-Smooth Dynamics and Multiple Equilibria in a Cournt-Ramsey Model with Endogenous Markups," Working Papers Department of Economics 2010/14, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Rodolphe Dos Santos Ferreira & Frederic Dufourt, 2006. "Free entry and business cycles under the influence of animal spirits," Post-Print halshs-00789030, HAL.
  5. Jaimovich, Nir & Floetotto, Max, 2008. "Firm dynamics, markup variations, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1238-1252, October.
  6. Kuhry, Yves, 2001. "Endogenous fluctuations in a cournotian monopolistic competition model with free entry and market power variability," Research in Economics, Elsevier, vol. 55(4), pages 389-412, December.
  7. Chris Edmond & Laura Veldkamp, 2008. "Income Dispersion and Counter-Cyclical Markups," NBER Working Papers 14452, National Bureau of Economic Research, Inc.
  8. Jaimovich, Nir, 2007. "Firm dynamics and markup variations: Implications for sunspot equilibria and endogenous economic fluctuations," Journal of Economic Theory, Elsevier, vol. 137(1), pages 300-325, November.

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