Asset bubbles and product market competition

Francisco Queiros

Theoretical Economics, 2024, vol. 19, issue 1

Abstract: This paper studies the interplay between asset bubbles and product market competition. It offers two main insights. The first is that imperfect competition creates a wedge between interest rates and the marginal product of capital. This makes rational bubbles possible even when there is no overaccumulation of capital. The second is that, when providing a production subsidy, bubbles stimulate competition and reduce monopoly rents. I show that bubbles can destroy efficient investment and have ambiguous welfare consequences. However, when they stimulate competition, they can have crowding-in effects on capital.

Keywords: Rational bubbles; overaccumulation; competition; market power (search for similar items in EconPapers)
JEL-codes: E44 L13 L16 (search for similar items in EconPapers)
Date: 2024-01-26
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Related works:
Working Paper: Asset Bubbles and Product Market Competition (2021)
Working Paper: Asset Bubbles and Product Market Competition (2018)
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