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Endogenous Product Scope: Market Interlacing and Aggregate Business Cycle Dynamics

Author

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  • Oscar Pavlov
  • Mark Weder

Abstract

This paper examines a market interlacing industry configuration in general equilibrium with multi-product firms. In contrast to previous studies which utilize market segmentation, firms produce multiple products even in the complete absence of the love of variety. Product scopes are procyclical and entry and exit of firms generates an endogenous amplification mechanism. When simulated by shocks derived from the efficiency and labor wedges, the model replicates the changes in dynamics between the pre- and post 1983 periods, and explains the hours-productivity puzzle.

Suggested Citation

  • Oscar Pavlov & Mark Weder, 2021. "Endogenous Product Scope: Market Interlacing and Aggregate Business Cycle Dynamics," CAMA Working Papers 2021-03, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-03
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-05/3_2021_Pavlov_Weder.pdf
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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