EconPapers    
Economics at your fingertips  
 

TASTE FOR VARIETY AND ENDOGENOUS FLUCTUATIONS IN A MONOPOLISTIC COMPETITION MODEL

Thomas Seegmuller

Macroeconomic Dynamics, 2008, vol. 12, issue 4, 561-577

Abstract: In past years, imperfect competition has been introduced in several dynamic models to show how markup variability, increasing returns (decreasing marginal cost), and monopoly profits affect the occurrence of endogenous fluctuations. In this paper, we focus on another possible feature of imperfectly competitive economies: consumers' taste for variety as a result of endogenous product diversity. Introducing monopolistic competition [Dixit and Stiglitz (1977), Benassy (1996)] in an overlapping generations model in which 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, because of taste for variety, the aggregate price decreases with the procyclical product diversity, which has a direct influence on the real wage and the real interest rate.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Taste for Variety and Endogenous Fluctuations in a Monopolistic Competition Model (2008) Downloads
Working Paper: Taste for Variety and Endogenous Fluctuations in a Monopolistic Competition Model (2008) Downloads
Working Paper: Taste for Variety and Endogenous Fluctuations in a Monopolistic Competition Model (2008) Downloads
Working Paper: Taste for variety and endogenous fluctuations in a monopolistic competition model (2007) Downloads
Working Paper: Taste for variety and endogenous fluctuations in a monopolistic competition model (2007) Downloads
Working Paper: Taste for variety and endogenous fluctuations in a monopolistic competition model (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:12:y:2008:i:04:p:561-577_07

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().

 
Page updated 2025-03-31
Handle: RePEc:cup:macdyn:v:12:y:2008:i:04:p:561-577_07