Cartel Stability, Mark-Up Cyclicality and Government Spending Multipliers
AbstractMark-up cyclical behaviour is relevant in determining the size of government spending multiplier on output. While theoretical literature priviliged the counteryclical hypothesis, empirical evidence is far from being conclusive. Based on seminal Rotemberg and Saloner (1986) contribution, we build a theoretical framework based on Bertrand duopoly, stochastic demand and product differentiation, where the analysis of cartel stability under partial collusion points towards procyclical pricing. According to the intensity of marginal cost cyclicality, this can produce a procyclical mark up or - at least - render it less countercyclical than expected, with relevant effects on the transmission mechanism of government spending stimuli.
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Date of creation: Mar 2012
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Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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