Endogenous Market Structure and the Business Cycle

Federico Etro () and Andrea Colciago

No 126, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We introduce endogenous strategic interactions under competition in quantities and in prices together with endogenous entry in a dynamic stochastic general equilibrium model with flexible prices. The endogenous mark ups depend on the form of competition and on the degree of substitutability between goods, and they vary countercylically while profits are procyclical. Positive temporary shocks to productivity and government spending attract entry. Entry strengthens competition between firms, which temporary reduces mark ups and prices: this creates an intertemporal substitution effect which provides an extra boost to consumption. The model outperforms the standard RBC framework in matching impulse response functions and second moments for US data.

Keywords: Endogenous Market Structure; Firms?Entry; Business Cycle (search for similar items in EconPapers)
JEL-codes: E32 L11 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2007-11, Revised 2007-11
New Economics Papers: this item is included in nep-bec, nep-com, nep-dge, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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http://repec.dems.unimib.it/repec/pdf/mibwpaper126.pdf First version, 2007 (application/pdf)

Related works:
Working Paper: Endogenous Market Structures and the Business Cycle (2011)
Journal Article: Endogenous Market Structures and the Business Cycle (2010)
Chapter: Endogenous Market Structures and Business Cycles (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:126

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