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Lumpy Consumer Durables, Market Power, and Endogenous Business Cycles

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  • Krishna, Kala

    (Pennsylvania State U)

  • Yavas, Cemile

Abstract

This paper examines the role of lumpy consumer durables and market power in generating endogenous cycles which seem to be consistent with the facts. When goods are durable, past consumption choices determine the current market size which consists of consumers who have not purchased the good previously, and who have the income to make their potential demand effective. Larger past sales, ceteris paribus, thus naturally result in a smaller current market size and income. In this manner, the seeds of a downturn are sown in an upturn.

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Bibliographic Info

Paper provided by Pennsylvania State University, Department of Economics in its series Working Papers with number 3-01-1.

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Date of creation: Mar 2001
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Handle: RePEc:ecl:peneco:3-01-1

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  1. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
  2. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  3. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
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  6. Ng Yew Kwang, 1965. "Why do People Buy Lottery Tickets? Choices Involving Risk and the Indivisibility of Expenditure," Journal of Political Economy, University of Chicago Press, vol. 73, pages 530.
  7. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  8. Robert J. Gordon & Arthur M. Okun & Herbert Stein, 1980. "Postwar Macroeconomics: The Evolution of Events and Ideas," NBER Chapters, in: The American Economy in Transition, pages 101-182 National Bureau of Economic Research, Inc.
  9. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  10. Fudenberg, Drew & Diamond, Peter, 1989. "Rational Expectations Business Cycles in Search Equilibrium," Scholarly Articles 3374509, Harvard University Department of Economics.
  11. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February.
  12. Scarf, Herbert E, 1981. "Production Sets with Indivisibilities-Part I: Generalities," Econometrica, Econometric Society, vol. 49(1), pages 1-32, January.
  13. Howitt, P. & Mcfee, R.P., 1990. "Animal Spirits," UWO Department of Economics Working Papers 9005, University of Western Ontario, Department of Economics.
  14. Mark Bils, 1989. "Cyclical Pricing of Durable Goods," NBER Working Papers 3050, National Bureau of Economic Research, Inc.
  15. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
  16. Caplin, Andrew S, 1985. "The Variability of Aggregate Demand with (S, s) Inventory Policies," Econometrica, Econometric Society, vol. 53(6), pages 1395-1409, November.
  17. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
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Cited by:
  1. Kala Krishna & Cemile Yavas, 2002. "When Does Trade Hurt? Market, Transition and Developing Economies," NBER Working Papers 8995, National Bureau of Economic Research, Inc.

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