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Variable markups in the long-run: A generalization of preferences in growth models

Author

Listed:
  • Hélène Latzer

    (CNRS - Centre National de la Recherche Scientifique, CEREC - Centre de recherche en économie - Université Saint-Louis - Bruxelles, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Raouf Boucekkine

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Mathieu Parenti

    (CEPR - Centre for Economic Policy Research, ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles = Free University of Brussels)

Abstract

This paper introduces variable markups in a horizontal-differentiation growth model by considering a larger class of preferences that nests the classic "CES" specification usually present in the workhorse love-for-variety models. Our first result is to obtain a generalized characterization of the Euler condition for this broader class of utility functions: in our model, the Euler rule features a supplementary term aiming at compensating the consumer for variations in the preference for variety along the consumption level. We are then also able to demonstrate that in our generalized framework, the economy's balanced growth path displays both endogenous markups and a strictly positive growth rate of the number of available varieties (being the engine of growth). Finally, we show that under endogenous markups, the economy's growth rate and firms' market power can display a negative correlation, as opposed to the standard result obtained in the CES framework.

Suggested Citation

  • Hélène Latzer & Raouf Boucekkine & Mathieu Parenti, 2017. "Variable markups in the long-run: A generalization of preferences in growth models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01436528, HAL.
    • Handle: RePEc:hal:cesptp:hal-01436528
    DOI: 10.1016/j.jmateco.2016.11.005
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    Cited by:

    1. Cavallari, Lilia, 2022. "The international real business cycle when demand matters," Journal of Macroeconomics, Elsevier, vol. 73(C).
    2. Paolo Bertoletti & Federico Etro, 2022. "Monopolistic competition, as you like it," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 293-319, January.
    3. Etro, Federico, 2019. "The Romer model with monopolistic competition and general technologies," Economics Letters, Elsevier, vol. 181(C), pages 1-6.
    4. Cavallari, Lilia & Etro, Federico, 2020. "Demand, markups and the business cycle," European Economic Review, Elsevier, vol. 127(C).
    5. Alberto Bucci & Philip Ushchev, 2021. "Specialization versus competition: an anatomy of increasing returns to scale," Journal of Economic Geography, Oxford University Press, vol. 21(3), pages 461-486.
    6. Etro, Federico, 2023. "Technologies for endogenous growth," Journal of Mathematical Economics, Elsevier, vol. 105(C).
    7. Alberto Bucci & Vladimir Matveenko, 2017. "Horizontal differentiation and economic growth under non-CES aggregate production function," Journal of Economics, Springer, vol. 120(1), pages 1-29, January.
    8. Etro, Federico, 2017. "Research in economics and macroeconomics," Research in Economics, Elsevier, vol. 71(3), pages 373-383.
    9. Hélène Latzer & Kiminori Matsuyama & Mathieu Parenti, 2018. "The market Size Effect in Endogenous Growth Reconsidered," Documents de travail du Centre d'Economie de la Sorbonne 18032, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    10. Hélène Latzer & Kiminori Matsuyama & Mathieu Parenti, 2019. "Reconsidering the Market Size Effect in Innovation and Growth," Working Papers ECARES 2019-31, ULB -- Universite Libre de Bruxelles.
    11. Lilia Cavallari & Federico Etro, 2017. "Demand, Markups and the Business Cycle. Bayesian Estimation and Quantitative Analysis in Closed and Open Economies," Working Papers 2017:09, Department of Economics, University of Venice "Ca' Foscari".
    12. Boitier, Vincent, 2024. "Private ownership in monopolistic competition models," Research in Economics, Elsevier, vol. 78(4).
    13. Gilad Sorek, 2025. "Schumpeterian growth with variable demand elasticity," Economic Inquiry, Western Economic Association International, vol. 63(4), pages 1110-1126, October.
    14. Federico Etro, 2018. "Macroeconomics with Endogenous Markups and Optimal Taxation," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 378-406, October.

    More about this item

    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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