IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Taste for variety and endogenous fluctuations in a monopolistic competition model

In past years, imperfect competition has been introduced in several dynamic models to show how mark-up variability, increasing returns (decreasing marginal cost) and monopoly profits affect the occurence of endogenous fluctuations. In this paper, we focus on another possible feature of imperfectly competitive economies : consumers' taste for variety due to endogenous product diversity. Introducing monopolistic competition (Dixit and Stiglitz (1977), Benassy (1996)) in an overlapping generations model where consumers have taste for variety, we show that local indeterminacy can occur under the three following conditions : a high substitution between capital and labor, increasing returns arbitrarily small and a not too elastic labor supply. The key mechanism for this result is based on the fact that, due to taste for variety, the aggregate price decreases with the pro-cyclical product diversity which has a direct influence on the real wage and the real interest rate.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2007/V07004.pdf
Download Restriction: no

Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number v07004.

as
in new window

Length: 22 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:mse:cesdoc:v07004
Contact details of provider: Postal: 106-112 boulevard de l'Hôpital 75 647 PARIS CEDEX 13
Phone: + 33 44 07 81 00
Fax: + 33 1 44 07 83 01
Web page: http://centredeconomiesorbonne.univ-paris1.fr/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jean-Michel Grandmont, 2008. "Nonlinear Difference Equations, Bifurcation and Chaos : An Introduction”," Working Papers 2008-19, Centre de Recherche en Economie et Statistique.
  2. Laurence Ball & David Romer, 1987. "Sticky Prices as Coordination Failure," NBER Working Papers 2327, National Bureau of Economic Research, Inc.
  3. Thomas Seegmuller, 2009. "Capital-Labour Substitution And Endogenous Fluctuations: A Monopolistic Competition Approach With Variable Markup," The Japanese Economic Review, Japanese Economic Association, vol. 60(3), pages 301-319.
  4. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  6. Weder, Mark, 2000. "Animal spirits, technology shocks and the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 273-295, February.
  7. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  8. Gali, J., 1991. "Monopolistic Competition, Business Cycles and the Composition of Aggregate Demand," Papers 92-03, Columbia - Graduate School of Business.
  9. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
  10. Grandmont, Jean-Michel & Pintus, Patrick & de Vilder, Robin, 1998. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Journal of Economic Theory, Elsevier, vol. 80(1), pages 14-59, May.
  11. Lloyd-Braga, Teresa & Nourry, Carine & Venditti, Alain, 2005. "Indeterminacy in Dynamic Models: When Diamond Meets Ramsey," CEPR Discussion Papers 5255, C.E.P.R. Discussion Papers.
  12. Rodolphe Dos Santos Ferreira & Teresa Lloyd-Braga, 2002. "Can market power sustain endogenous growth in overlapping-generations economies?," Economic Theory, Springer, vol. 20(1), pages 199-205.
  13. Jorgen Jacobsen, Hans, 2000. "Endogenous, imperfectly competitive business cycles," European Economic Review, Elsevier, vol. 44(2), pages 305-336, February.
  14. Thomas Seegmuller, 2005. "On the Stabilizing Virtues of Imperfect Competition," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194173, HAL.
  15. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
  16. Rivard Brian A., 1994. "Monopolistic Competition, Increasing Returns, and Self-Fulfilling Prophecies," Journal of Economic Theory, Elsevier, vol. 62(2), pages 346-362, April.
  17. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  18. Basu, S. & Fernald, J.G., 1993. "Are Apparent Productive Spillovers a Figment of Specification Error," Papers 93-22, Michigan - Center for Research on Economic & Social Theory.
  19. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
  20. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
  21. Kiyotaki, Nobuhiro, 1988. "Multiple Expectational Equilibria under Monopolistic Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 695-713, November.
  22. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick A., 1998. "Multiple Steady States and Endogenous Fluctuations with Increasing Returns to Scale in Production," Journal of Economic Theory, Elsevier, vol. 80(1), pages 60-107, May.
  23. Reichlin, Pietro, 1986. "Equilibrium cycles in an overlapping generations economy with production," Journal of Economic Theory, Elsevier, vol. 40(1), pages 89-102, October.
  24. Guesnerie, R. & Woodford, M., 1991. "Endogenous Fluctuations," DELTA Working Papers 91-10, DELTA (Ecole normale supérieure).
  25. 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.
  26. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
  27. Cazzavillan, Guido, 2001. "Indeterminacy and Endogenous Fluctuations with Arbitrarily Small Externalities," Journal of Economic Theory, Elsevier, vol. 101(1), pages 133-157, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mse:cesdoc:v07004. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucie Label)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.