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On the stabilizing virtues of imperfect competition

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  • Thomas Seegmuller

Abstract

We analyze the stabilizing role of imperfect competition on fluctuations due to indeterminacy and endogenous cycles. In this paper, imperfect competition is a source of monopoly profits, because of producer market power. Considering anoverlapping generations model with capital accumulation and elastic labor supply, we show that under imperfect competition, the emergence of endogenous fluctuations requires a weaker substitution between production factorsthan under perfect competition. In this sense, imperfect competition stabilizes fluctuations. However, we find an opposite conclusion concerning the elasticity of labor supply. Indeed, endogenous fluctuations are compatible with a less elastic labor supply under imperfect competition.

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Bibliographic Info

Article provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.

Volume (Year): 1 (2005)
Issue (Month): 4 ()
Pages: 313-323

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Handle: RePEc:bla:ijethy:v:1:y:2005:i:4:p:313-323

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References

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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  8. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick A., 1998. "Multiple Steady States and Endogenous Fluctuations with Increasing Returns to Scale in Production," Journal of Economic Theory, Elsevier, vol. 80(1), pages 60-107, May.
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  10. Rodolphe Dos Santos Ferreira & Teresa Lloyd-Braga, 2002. "Can market power sustain endogenous growth in overlapping-generations economies?," Economic Theory, Springer, Springer, vol. 20(1), pages 199-205.
  11. Thomas Seegmuller, 2005. "Steady state analysis and endogenous fluctuations in a finance constrained model," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) v05029, Université Panthéon-Sorbonne (Paris 1).
  12. GRANDMONT, Jean-Michel & PINTUS, Patrick & de VILDER, Robin, 1997. "Capital-labor substitution and competitive nonlinear endogenous business cycles," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1997087, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Jorgen Jacobsen, Hans, 2000. "Endogenous, imperfectly competitive business cycles," European Economic Review, Elsevier, vol. 44(2), pages 305-336, February.
  14. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, Springer, vol. 5(1), pages 87-120, March.
  15. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
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Cited by:
  1. Thomas Seegmuller, 2008. "Taste for Variety and Endogenous Fluctuations in a Monopolistic Competition Model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00266722, HAL.

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