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On the Stabilizing Virtues of Imperfect Competition

  • Thomas Seegmuller

    ()

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

We analyze the stabilizing role of imperfect competition on fluctuations due to indeterminacy and endogenous cycles. In this paper, imperfect competition is a source of monopoly profits, because of producer market power. Considering anoverlapping generations model with capital accumulation and elastic labor supply, we show that under imperfect competition, the emergence of endogenous fluctuations requires a weaker substitution between production factorsthan under perfect competition. In this sense, imperfect competition stabilizes fluctuations. However, we find an opposite conclusion concerning the elasticity of labor supply. Indeed, endogenous fluctuations are compatible with a less elastic labor supply under imperfect competition.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00194173.

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Date of creation: 2005
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Publication status: Published in International Journal of Economic Theory, Wiley, 2005, 1 (4), pp.313-323. <10.1111/j.1742-7363.2005.00019.x>
Handle: RePEc:hal:cesptp:halshs-00194173
DOI: 10.1111/j.1742-7363.2005.00019.x
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00194173
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  1. Duffy, John & Papageorgiou, Chris, 2000. "A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  2. GRANDMONT, Jean-Michel & PINTUS, Patrick & de VILDER, Robin, 1997. "Capital-labor substitution and competitive nonlinear endogenous business cycles," CORE Discussion Papers 1997087, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jorgen Jacobsen, Hans, 2000. "Endogenous, imperfectly competitive business cycles," European Economic Review, Elsevier, vol. 44(2), pages 305-336, February.
  4. Thomas Seegmuller, 2005. "Steady state analysis and endogenous fluctuations in a finance constrained model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194358, HAL.
  5. Benhabib, Jess & Farmer, Roger E.A., 1991. "Indeterminacy and Increasing Returns," Working Papers 91-59, C.V. Starr Center for Applied Economics, New York University.
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  7. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
  8. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick, 1996. "Multiple steady states and endogenous fluctuations with increasing returns to scale in production," CEPREMAP Working Papers (Couverture Orange) 9618, CEPREMAP.
  9. Silvestre, J., 1994. "Market Power in Macroeconomic Models: New Developments," Papers 94-07, California Davis - Institute of Governmental Affairs.
  10. Weder, Mark, 1997. "Animal spirits, technology shocks and the business cycle," SFB 373 Discussion Papers 1997,61, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  12. Guo, Jang-Ting & Harrison, Sharon G., 2004. "Balanced-budget rules and macroeconomic (in)stability," Journal of Economic Theory, Elsevier, vol. 119(2), pages 357-363, December.
  13. Reichlin, Pietro, 1986. "Equilibrium cycles in an overlapping generations economy with production," Journal of Economic Theory, Elsevier, vol. 40(1), pages 89-102, October.
  14. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
  15. Rodolphe Dos Santos Ferreira & Teresa Lloyd-Braga, 2002. "Can market power sustain endogenous growth in overlapping-generations economies?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(1), pages 199-205.
  16. Thomas Seegmuller, 2005. "Steady state analysis and endogenous fluctuations in a finance constrained model," Cahiers de la Maison des Sciences Economiques v05029, Université Panthéon-Sorbonne (Paris 1).
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