The EMSs Approach to Macroeconomics

In this chapter we start our review of an approach to macroeconomics that is in part alternative and in part complementary to the neoclassical one. We depart from the perfectly competitive environment, in the sense that firms do not take prices as given, but they do choose their strategies and they interact strategically. We focus not only on the choice of prices as the strategic variables, but also on the choice of output levels, and on the choice of entry to produce new or better goods. In most of the analysis of this book we adopt either symmetric Cournot competition or symmetric Bertrand competition as the main models of static strategic interactions, but we will occasionally introduce other forms of competition, as Stackelberg competition or models of imperfect collusion, and we propose a general approach that can be employed with more sophisticated competitive structures borrowed from research in the field of industrial organization. As a matter of fact, one of the main aims of this book is exactly to build a solid bridge between macroeconomics and industrial organization.