Market Power, Coordination Failures and Endogenous Fluctuations
vVe analyse an overlapping generations economy with Cournotian monopolistic competition in the produced goods markets and perfect competition in the labour market. All prices are perfectly flexible and no adjustments costs are introduced. We show that these features lead to properties qualitatively different from those obtained when all markets are perfectly competitive. First there is a possibility of multiple Pareto-ranked temporary or stationary equilibria. Second, a preliminary analysis of the intertemporal equilibria shows that imperfect competition opens up new possibilities of endogenous fluctuations, and may lead to non-monotonicity of all equilibria in prices and output. These results are essentially based on two features, naturally associated with imperfect competition, increasing returns to scale and the variability of oligopolistic market power as a consequence of the variability of demand elasticity.
|Date of creation:||01 Dec 1994|
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