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Capital-Labour Substitution And Endogenous Fluctuations: A Monopolistic Competition Approach With Variable Markup




In macroeconomics, economists introduce most frequently imperfect competition on product markets using the Dixit and Stiglitz (1977) monopolistic competition model. However, by assumption, this framework ignores one important feature of imperfect competition: strategic interactions between producers. Taking into account this remark and following Yang and Hejdra (1993), this paper analyzes an overlapping generations model where strategic interactions between producers are introduced and examines how they affect the stability properties of the steady state. Because of free entry, strategic interactions between producers imply a new dynamic feature, mark-up variability, promoting indeterminacy and endogenous cycles. Indeed, in contrast to the model without strategic interaction, endogenous fluctuations can occur when the substitution between the production factors, capital and labor, is not too weak, but in accordance with empirical estimates.
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  • 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.
  • Handle: RePEc:bla:jecrev:v:60:y:2009:i:3:p:301-319

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    References listed on IDEAS

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    Cited by:

    1. Bosi, Stefano & Seegmuller, Thomas, 2008. "Can heterogeneous preferences stabilize endogenous fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 624-647, February.
    2. Seegmuller, Thomas, 2008. "Taste For Variety And Endogenous Fluctuations In A Monopolistic Competition Model," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 561-577, September.
    3. Piero Ferri & Annalisa Cristini & Anna Maria Variato, 2016. "Endogenous fluctuations, markups, capacity and credit constraints," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 11(2), pages 273-292, October.
    4. Lloyd-Braga, Teresa & Modesto, Leonor & Seegmuller, Thomas, 2014. "Market distortions and local indeterminacy: A general approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 216-247.
    5. repec:hal:journl:halshs-00266713 is not listed on IDEAS
    6. repec:hal:journl:halshs-00266722 is not listed on IDEAS

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