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On the stabilizing virtues of imperfect competition

  • Thomas Seegmuller

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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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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  1. Reichlin, Pietro, 1986. "Equilibrium cycles in an overlapping generations economy with production," Journal of Economic Theory, Elsevier, vol. 40(1), pages 89-102, October.
  2. GRANDMONT, Jean-Michel & PINTUS, Patrick & de VILDER, Robin, 1997. "Capital-labor substitution and competitive nonlinear endogenous business cycles," CORE Discussion Papers 1997087, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Thomas Seegmuller, 2005. "Steady state analysis and endogenous fluctuations in a finance constrained model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194358, HAL.
  4. Jordi Galí, 1993. "Monopolistic competition, business cycles and the composition of aggregate demand," Economics Working Papers 45, Department of Economics and Business, Universitat Pompeu Fabra.
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  7. 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.
  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.
  9. Rodolphe Dos Santos Ferreira & Teresa Lloyd-Braga, 2002. "Can market power sustain endogenous growth in overlapping-generations economies?," Economic Theory, Springer, vol. 20(1), pages 199-205.
  10. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  11. Silvestre, J., 1994. "Market Power in Macroeconomic Models: New Developments," Papers 94-07, California Davis - Institute of Governmental Affairs.
  12. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  13. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  14. Jorgen Jacobsen, Hans, 2000. "Endogenous, imperfectly competitive business cycles," European Economic Review, Elsevier, vol. 44(2), pages 305-336, February.
  15. Guo, Jang-Ting & Harrison, Sharon G., 2004. "Balanced-budget rules and macroeconomic (in)stability," Journal of Economic Theory, Elsevier, vol. 119(2), pages 357-363, December.
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