Capacity utilization and market power
In a monopolistic competition framework, we propose a dynamic model in which capacity underutilization is a macroeconomic equilibrium feature relying on a diversity of microeconomic situations. Capacity underutilization follows from microeconomic uncertainty at the time firms must decide on their productive capacity. We settle a relationship between capacity utilization and markups via the effect of capacity utilization rate changes on firms' market power. We show that such a relationship influences significantly the short run response of the economy to exogenous shocks. In particular, the same shock can have quite different short run effects depending on the characteristics of the initial stationary state (low or high capacity utilization rate).
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- repec:adr:anecst:y:1995:i:37-38:p:17 is not listed on IDEAS
- Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
- Puch, Luis A. & Licandro, Omar, 1995.
"Capital utilization: maintenance costs and the business cycle,"
UC3M Working papers. Economics
3917, Universidad Carlos III de Madrid. Departamento de Economía.
- Omar Licandro & Luis A. Puch, 2000. "Capital Utilization, Maintenance Costs and the Business Cycle," Annals of Economics and Statistics, GENES, issue 58, pages 143-164.
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
- 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.
- Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June.
- Gali, J., 1991. "Monopolistic Competition, Business Cycles and the Composition of Aggregate Demand," Papers 92-03, Columbia - Graduate School of Business.
- repec:adr:anecst:y:1995:i:37-38 is not listed on IDEAS
- de la Croix, David & Licandro, Omar, 1993.
"Irreversibility, Uncertainty and Underemployment Equilibria,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1994028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Oct 1994.
- Licandro, Omar & Croix, David de la, 1994. "Irreversibility, uncertainty and underemployment equilibria," UC3M Working papers. Economics 2970, Universidad Carlos III de Madrid. Departamento de Economía.
- 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.
- Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
- repec:adr:anecst:y:1995:i:37-38:p:12 is not listed on IDEAS
- repec:adr:anecst:y:1995:i:37-38:p:10 is not listed on IDEAS
- Sneessens, Henri R., 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition," European Economic Review, Elsevier, vol. 31(3), pages 781-808, April.
- Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993.
"Labor Hoarding and the Business Cycle,"
Journal of Political Economy,
University of Chicago Press, vol. 101(2), pages 245-73, April.
- Jean-Pascal Benassy, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 217-234.
- de la Croix, David & Fagnart, Jean-Francois, 1995. "Underemployment of production factors in a forward-looking model," Labour Economics, Elsevier, vol. 2(2), pages 131-159, June.
- Jordi Gali & Fabrizio Zilibotti, 1995. "Endogenous Growth and Poverty Traps in a Cournotian Model," Annals of Economics and Statistics, GENES, issue 37-38, pages 197-213.
- Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
- Thomas F. Cooley & Gary D. Hansen & Edward C. Prescott, 1994.
"Equilibrium business cycles with idle resources and variable capacity utilization,"
94-22, Federal Reserve Bank of Philadelphia.
- Cooley, Thomas F & Hansen, Gary D & Prescott, Edward C, 1995. "Equilibrium Business Cycles with Idle Resources and Variable Capacity Utilization," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 35-49, June.
- Burnside, Craig & Eichenbaum, Martin, 1996.
"Factor-Hoarding and the Propagation of Business-Cycle Shocks,"
American Economic Review,
American Economic Association, vol. 86(5), pages 1154-74, December.
- Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
- Julio J. Rotemberg & Michael Woodford, 1993. "Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets," NBER Working Papers 4502, National Bureau of Economic Research, Inc.
- Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
- Boucekkine, Raouf, 1995. "An alternative methodology for solving nonlinear forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 711-734, May.
- repec:adr:anecst:y:1990:i:17:p:04 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:22:y:1997:i:1:p:123-140. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.