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Non-smooth Dynamics and Multiple Equilibria in a Cournot-Ramsey Model with Endogenous Markups

We consider a Ramsey model with a continuum of Cournotian industries where free entry generates an endogenous markup. The model produces two different regimes: monopoly and oligopoly. We study the non-smooth dynamics and analyze the global dynamics of the model, demonstrating the model exhibits robust heteroclinic orbits, either of the smooth or the non-smooth type. Similar economies may be in any of these regimes and they may change regime along its convergence path. Productivity, fixed costs and elasticities of demand, play a crucial role and changing their values may induce a discontinuous transition or hysteresis.

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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2008/21.

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Length: 47 pages
Date of creation: Sep 2008
Date of revision: Jul 2010
Handle: RePEc:cdf:wpaper:2008/21
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