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Non-smooth Dynamics and Multiple Equilibria in a Cournot-Ramsey Model with Endogenous Markups

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Author Info
Brito, Paulo
Costa, Luís F.
Dixon, Huw () (Cardiff Business School)

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Abstract

We develop a simple Ramsey model with numerous Cournotian industries where entry generates an endogenous markup. The model produces two different regimes: a monopoly and an oligopoly one. We provide a rigorous study of non-smooth dynamics and we also analyse the global dynamics of the model, demonstrating the model exhibits robust heteroclinic orbits, either of the smooth or the non-smooth type. Similar economies may be in any of these regimes and they may change regime along its convergence path. Fixed costs and elasticities of demand, play a crucial role and changing their values may alter the dynamics in a radical way, either by inducing a discontinuous transition or a discontinuous hysteresis.

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File URL: http://www.cardiff.ac.uk/carbs/econ/workingpapers/papers/E2008_21.pdf
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Publisher Info
Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2008/21.

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Length: 51 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:cdf:wpaper:2008/21

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Related research
Keywords: endogenous mark-ups; non-smooth dynamics; discontinuous induced bifurcations; heteroclinic orbits;

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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References listed on IDEAS
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    Other versions:
  2. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
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  7. Benhabib, Jess & Gali, Jordi, 1995. "On growth and indeterminacy: some theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 163-211, December. [Downloadable!] (restricted)
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  8. Luís Costa, 2006. "Entry and fiscal policy effectiveness in a small open economy within a Monetary Union," Portuguese Economic Journal, Springer, vol. 5(1), pages 45-65, May. [Downloadable!] (restricted)
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  10. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2005. "Non-linear endogenous fluctuations with free entry and variable markups," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 847-871, May. [Downloadable!] (restricted)
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  13. Luis F. Costa & Huw D. Dixon, 2007. "A Simple Business-Cycle Model with Schumpeterian Features," Money Macro and Finance (MMF) Research Group Conference 2006 105, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  14. Costa, Luis F, 2001. "Can Fiscal Policy Improve Welfare in a Small Dependent Economy with Feedback Effects," Manchester School, University of Manchester, vol. 69(4), pages 418-39, September. [Downloadable!] (restricted)
  15. Gali, Jordi, 1995. "Product diversity, endogenous markups, and development traps," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 39-63, August. [Downloadable!] (restricted)
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  16. Judith A. Chevalier & David S. Scharfstein, 1994. "Capital Market Imperfections and Countercyclical Markups: Theory and Evidence," NBER Working Papers 4614, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Gali, Jordi, 1994. "Monopolistic competition, endogenous markups, and growth," European Economic Review, Elsevier, vol. 38(3-4), pages 748-756, April. [Downloadable!] (restricted)
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  18. Wu, Yangru & Zhang, Junxi, 2000. "Endogenous markups and the effects of income taxation:: Theory and evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 77(3), pages 383-406, September. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
  20. dÊASPREMONT, Claude, & DOSÊSANTOSÊFERREIRAÊ, Rodolphe & GERARD-VARETÊ, Louis-AndrŽ, 1994. "Market Power, Coordination Failures and Endogenous Fluctuations," CORE Discussion Papers 1994068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  21. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December. [Downloadable!] (restricted)
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  22. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  23. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March. [Downloadable!] (restricted)
  24. Florin Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007. "Endogenous Entry, Product Variety, and Business Cycles," NBER Working Papers 13646, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  25. Kaas, Leo & Madden, Paul, 2005. "Imperfectly competitive cycles with Keynesian and Walrasian features," European Economic Review, Elsevier, vol. 49(4), pages 861-886, May. [Downloadable!] (restricted)
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  26. Dos Santos Ferreira, Rodolphe & Dufourt, Frederic, 2006. "Free entry and business cycles under the influence of animal spirits," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 311-328, March. [Downloadable!] (restricted)
  27. Dixit, Avinash K & Stiglitz, Joseph E, 1993. "Monopolistic Competition and Optimum Product Diversity: Reply," American Economic Review, American Economic Association, vol. 83(1), pages 302-04, March. [Downloadable!] (restricted)
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