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Real Business Cycles with Cournot Competition and Endogenous Entry

  • Colciago, Andrea
  • Etro, Federico

We introduce Cournot competition and endogenous entry in an otherwise neoclassical macroeconomic framework. First, we develop a model with exogenous savings à la Solow describing the dynamic path of business 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 profits 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://mpra.ub.uni-muenchen.de/7326/1/MPRA_paper_7326.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7326.

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Date of creation: 30 Sep 2007
Date of revision: 25 Feb 2008
Handle: RePEc:pra:mprapa:7326
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  1. 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.
  2. Galí, Jordi & Gertler, Mark & Lopez-Salido, Jose David, 2003. "Mark-ups, Gaps and the Welfare Costs of Business Fluctuations," CEPR Discussion Papers 4134, C.E.P.R. Discussion Papers.
  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. 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.
  5. Jeffrey R. Campbell & Hugo A. Hopenhayn, 2005. "Market Size Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 1-25, 03.
  6. Yi Wen, 2006. "Demand shocks and economic fluctuations," Working Papers 2006-011, Federal Reserve Bank of St. Louis.
  7. repec:sen:rebelj:v:liv:y:2009:i:2:p:179-209 is not listed on IDEAS
  8. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
  9. Satyajit Chatterjee & Russell W. Cooper, 1993. "Entry and exit, product variety and the business cycle," Working Papers 93-30, Federal Reserve Bank of Philadelphia.
  10. 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.
  11. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
  12. Lewis, Vivien, 2008. "Business cycle evidence on firm entry," Discussion Paper Series 1: Economic Studies 2008,08, Deutsche Bundesbank, Research Centre.
  13. 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.
  14. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007.
  15. 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.
  16. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER).
  17. 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.
  18. 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.
  19. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
  20. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1241-77, November.
  21. 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.
  22. 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.
  23. Ravn, Morten O & Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Deep Habits," CEPR Discussion Papers 4269, C.E.P.R. Discussion Papers.
  24. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
  25. 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.
  26. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  27. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, June.
  28. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
  29. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December.
  30. 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.
  31. 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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