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Business Cycle in a Macromodel with Oligopoly and Agents’ Heterogeneity: An Agent-Based Approach

Author

Listed:
  • Marco Mazzoli

    (University of Genova)

  • Matteo Morini

    (Scuola di Management ed Economia-Università di Torino)

  • Pietro Terna

    (Università di Torino)

Abstract

This paper introduces a macromodel with oligopoly and entry/exit in a framework where individuals are heterogeneous in their budget constraints, since they can be workers, new entrant entrepreneurs, incumbent entrepreneurs or unemployed and may change their status due to a stochastic process, associated to entry and exit. Agents’ heterogeneity is explicitly modelled in the aggregate demand, that also accounts for the income distribution. Heterogeneity also plays a relevant role in the process of entry/exit in the goods market, which interacts with the labour market and generates macroeconomic fluctuations. As shown in the agent-based numerical simulation, the model provides a new interpretation of the business cycle and an explanation for the empirical phenomenon of countercyclical mark up.

Suggested Citation

  • Marco Mazzoli & Matteo Morini & Pietro Terna, 2017. "Business Cycle in a Macromodel with Oligopoly and Agents’ Heterogeneity: An Agent-Based Approach," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(3), pages 389-417, November.
    • Handle: RePEc:spr:italej:v:3:y:2017:i:3:d:10.1007_s40797-017-0058-y
    DOI: 10.1007/s40797-017-0058-y
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    References listed on IDEAS

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    1. Federico Etro & Andrea Colciago, 2010. "Endogenous Market Structures and the Business Cycle," Economic Journal, Royal Economic Society, vol. 120(549), pages 1201-1233, December.
    2. Merlone, Ugo & Szidarovszky, Ferenc, 2015. "Dynamic oligopolies with contingent workforce and investment costs," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 108(C), pages 144-154.
    3. Paul L. Borrill & Leigh Tesfatsion, 2011. "Agent-based Modeling: The Right Mathematics for the Social Sciences?," Chapters, in: John B. Davis & D. Wade Hands (ed.), The Elgar Companion to Recent Economic Methodology, chapter 11, Edward Elgar Publishing.
    4. Nigel Gilbert & Pietro Terna, 2000. "How to build and use agent-based models in social science," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 1(1), pages 57-72, March.
    5. Maskin, Eric, 1986. "The Existence of Equilibrium with Price-Setting Firms," American Economic Review, American Economic Association, vol. 76(2), pages 382-386, May.
    6. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
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    More about this item

    Keywords

    Cycles; Aggregate income distribution; Industrial organization; Macroeconomics;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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