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Real Business Cycles with Cournot Competition and Endogenous Entry

  • Andrea Colciago

    ()

  • Federico Etro

    ()

We introduce Cournot competition and endogenous entry in an oth- erwise neoclassical macroeconomic framework. First, we develop a model with exogenous savings à la Solow describing the dynamic path of busi- ness creation. Then, we develop a model à la Ramsey describing the dynamic interaction of consumption and business creation. Our models are able to explain why markups vary countercylically and pro?ts are procyclical. The analysis of permanent and temporary technology and preference shocks and of the second moments suggests that our model can outperform the Real Business Cycle framework in many dimensions.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper135.pdf
File Function: First version, 2008
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 135.

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Length: 30 pages
Date of creation: Sep 2007
Date of revision: Feb 2008
Handle: RePEc:mib:wpaper:135
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  1. Federico Etro & Andrea Colciago, 2007. "Endogenous Market Structure and the Business Cycle," Working Papers 126, University of Milano-Bicocca, Department of Economics, revised Nov 2007.
  2. V. Lewis, 2008. "Business Cycle Evidence on Firm Entry," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/539, Ghent University, Faculty of Economics and Business Administration.
  3. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Working Papers 13199, National Bureau of Economic Research, Inc.
  4. Mark D. Manuszak & Charles C. Moul, 2008. "PRICES AND ENDOGENOUS MARKET STRUCTURE IN OFFICE SUPPLY SUPERSTORES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 94-112, 03.
  5. Jordi Galí & Mark Gertler & J. David López-Salido, 2002. "Markups, gaps, and the welfare costs of business fluctuations," Banco de Espa�a Working Papers 0204, Banco de Espa�a.
  6. Federico Etro, 2009. "The Economic Impact of Cloud Computing on Business Creation, Employment and Output in Europe. An application of the Endogenous Market Structures Approach to a GPT innovation," Review of Business and Economics, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, vol. 0(2), pages 179-208.
  7. repec:sen:rebelj:v:liv:y:2009:i:2:p:179-209 is not listed on IDEAS
  8. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
  9. Manuszak, Mark D., 2002. "Endogenous market structure and competition in the 19th century American brewing industry," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 673-692, May.
  10. Bernard, Andrew B. & Redding, Stephen J. & Schott, Peter K., 2006. "Multi-Product Firms and Product Switching," CEPR Discussion Papers 5708, C.E.P.R. Discussion Papers.
  11. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  12. Morten O. Ravn & Stephanie Schmitt-Grohe, 2004. "Deep Habits," 2004 Meeting Papers 208, Society for Economic Dynamics.
  13. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
  14. Yi Wen, 2006. "Demand shocks and economic fluctuations," Working Papers 2006-011, Federal Reserve Bank of St. Louis.
  15. Jaimovich, Nir & Floetotto, Max, 2008. "Firm dynamics, markup variations, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1238-1252, October.
  16. Satyajit Chatterjee & Russell W. Cooper, 1993. "Entry and exit, product variety and the business cycle," Working Papers 93-30, Federal Reserve Bank of Philadelphia.
  17. Devereux, Michael B. & Head, Allen C. & Lapham, Beverly J., 1996. "Aggregate fluctuations with increasing returns to specialization and scale," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 627-656, April.
  18. Miles S. Kimball & Michael Woodford, 1994. "The quantitative analysis of the basic neomonetarist model," Proceedings, Federal Reserve Bank of Cleveland, pages 1241-1289.
  19. Jeffrey Campbell, 2000. "Market Size Matters," Econometric Society World Congress 2000 Contributed Papers 1225, Econometric Society.
  20. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier.
  21. Federico Etro, 2012. "Endogenous Market Structures and Welfare," Working Papers 2012_12, Department of Economics, University of Venice "Ca' Foscari".
  22. Wu, Yangru & Zhang, Junxi, 2001. "The Effects of Inflation on the Number of Firms and Firm Size," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 251-71, May.
  23. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, June.
  24. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
  25. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
  26. Franck PORTIER, 1995. "Business Formation and Cyclical Markups in the French Business Cycle," Annales d'Economie et de Statistique, ENSAE, issue 37-38, pages 411-440.
  27. Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
  28. Christian Broda & David E. Weinstein, 2007. "Product Creation and Destruction: Evidence and Price Implications," NBER Working Papers 13041, National Bureau of Economic Research, Inc.
  29. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December.
  30. Timothy F. Bresnahan & Peter C. Reiss, 1987. "Do Entry Conditions Vary across Markets?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 833-882.
  31. Devereux, Michael B & Lee, Khang Min, 2001. "Dynamic Gains from International Trade with Imperfect Competition and Market Power," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 239-55, June.
  32. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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