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Non-linear endogenous fluctuations with free entry and variable markups

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  • Dos Santos Ferreira, Rodolphe
  • Lloyd-Braga, Teresa

Abstract

The paper explores the effects of markup variability, associated with free entry of Cournotian firms, on the occurrence of local indeterminacy, local Hopf bifurcations and multiplicity of steady states. It uses an overlapping generations model with capital, in which differentiated intermediate goods are produced with constant marginal cost plus a positive fixed cost. If the markup factor were constant (the case of no free entry or the case of zero fixed costs leading to the perfectly competitive outcome), no local endogenous fluctuations or multiplicity of steady states can emerge, unless factors of production are complementary. On the contrary, with any positive (variable) market power, indeterminacy and multiplicity of steady states is possible for any value of the elasticity of technological substitution, and local Hopf bifurcations may also emerge, provided (variable) market power is high enough.
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  • Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2005. "Non-linear endogenous fluctuations with free entry and variable markups," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 847-871, May.
    • Handle: RePEc:eee:dyncon:v:29:y:2005:i:5:p:847-871
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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. Vera Ivanova & Philip Ushchev, 2019. "Product Differentiation, Competitive Toughness, and Intertemporal Substitution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 1244-1269, July.
    3. Vera Ivanova & Philip Ushchev, 2015. "When Ricardo Meets Chamberlin: A Simple Dynamic Model Of Monopolistic Competition," HSE Working papers WP BRP 99/EC/2015, National Research University Higher School of Economics.
    4. 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.
    5. 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.
    6. Alain Gabler, 2007. "Sector-specific Markup Fluctuations and the Business Cycle," Economics Working Papers ECO2007/25, European University Institute.
    7. 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.
    8. Ant Afonso & Lu . Costa, 2013. "Market power and fiscal policy in OECD countries," Applied Economics, Taylor & Francis Journals, vol. 45(32), pages 4545-4555, November.
    9. 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, September.
    10. 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.
    11. Maria José Gil-Moltó & Dimitrios Varvarigos, 2012. "Industry Dynamics and Indeterminacy in an OLG Economy with Endogenous Occupational Choice," Discussion Papers in Economics 12/09, Division of Economics, School of Business, University of Leicester, revised Sep 2012.
    12. Varvarigos, Dimitrios & Gil-Moltó, Maria José, 2016. "Endogenous Market Structure, Occupational Choice, And Growth Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 20(1), pages 70-94, January.
    13. Thomas Seegmuller & Leonor Modesto & Teresa Lloyd-Braga, 2008. "Market Imperfections and Endogenous Fluctuations," 2008 Meeting Papers 739, Society for Economic Dynamics.
    14. Sjögren, Tomas, 2017. "Can a Marginally Distorted Labor Market Improve Capital Accumulation, Output and Welfare?," Umeå Economic Studies 946, Umeå University, Department of Economics.
    15. Richard W. Evans, 2007. "Is openness inflationary? Imperfect competition and monetary market power," Globalization Institute Working Papers 01, Federal Reserve Bank of Dallas.
    16. Koichi Futagami & Tatsuro Iwaisako & Makoto Okamura, 2011. "Welfare Analysis of Free Entry in a Dynamic General Equilibrium Model," Discussion Papers in Economics and Business 11-20, Osaka University, Graduate School of Economics.
    17. Nicolas Abad, 2019. "Firms' Labor Market Power and Aggregate Instability," Working Papers hal-02329802, HAL.

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