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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.

Suggested Citation

  • Franck Portier, 1995. "Business Formation and Cyclical Markups in the French Business Cycle," Annals of Economics and Statistics, GENES, issue 37-38, pages 411-440.
  • Handle: RePEc:adr:anecst:y:1995:i:37-38:p:411-440
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    File URL: http://www.jstor.org/stable/20075993
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    Cited by:

    1. Luis F Costa & Huw D Dixon, "undated". "A Simple Business-Cycle Model with Schumpeterian Features," Discussion Papers 05/30, Department of Economics, University of York.
    2. Bilbiie, Florin O. & Fujiwara, Ippei & Ghironi, Fabio, 2014. "Optimal monetary policy with endogenous entry and product variety," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 1-20.
    3. Jaimovich, Nir & Floetotto, Max, 2008. "Firm dynamics, markup variations, and the business cycle," Journal of Monetary Economics, Elsevier, pages 1238-1252.
    4. António Afonso & Luís F. Costa, 2013. "Market power and fiscal policy in OECD countries," Applied Economics, Taylor & Francis Journals, vol. 45(32), pages 4545-4555, November.
    5. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2008. "Business cycles with free entry ruled by animal spirits," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3502-3519, November.
    6. Luca Lambertini & Luigi Marattin, 2016. "On Prices' Cyclical Behaviour in Oligopolistic Markets," Working Paper series 16-17, Rimini Centre for Economic Analysis.
    7. Denis Fougere & Erwan Gautier & Herve Le Bihan, 2010. "Restaurant Prices and the Minimum Wage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1199-1234, October.
    8. Stefano Eusepi & Bruce Preston, 2011. "Expectations, Learning, and Business Cycle Fluctuations," American Economic Review, American Economic Association, pages 2844-2872.
    9. Stefano Eusepi & Bruce Preston, 2011. "Expectations, Learning, and Business Cycle Fluctuations," American Economic Review, American Economic Association, pages 2844-2872.
    10. Ludger Linnemann, 1999. "Sectoral and aggregate estimates of the cyclical behavior of markups: Evidence from Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 480-500.
    11. Brito, Paulo B. & Costa, Luís F. & Dixon, Huw, 2013. "Non-smooth dynamics and multiple equilibria in a Cournot–Ramsey model with endogenous markups," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2287-2306.
    12. 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.
    13. Thomas Seegmuller, 2009. "Capital-Labour Substitution And Endogenous Fluctuations: A Monopolistic Competition Approach With Variable Markup," The Japanese Economic Review, Japanese Economic Association, vol. 60(3), pages 301-319.
    14. 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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