Capital-labor Substitution and Endogenous Fluctuations: a Monopolistic Competition Approach with Variable Mark-up

Thomas Seegmuller

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Abstract: In macroeconomics, economists introduce most frequently imperfect competition on product markets using the Dixit and Stiglitz (1977) monopolistic competition model. However, by assumption, this framework ignores one important feature of imperfect competition: strategic interactions between producers. Taking into account this remark and following Yang and Hejdra (1993), this paper analyzes an overlapping generations model where strategic interactions between producers are introduced and examines how they affect the stability properties of the steady state. Because of free entry, strategic interactions between producers imply a new dynamic feature, mark-up variability, promoting indeterminacy and endogenous cycles. Indeed, in contrast to the model without strategic interaction, endogenous fluctuations can occur when the substitution between the production factors, capital and labor, is not too weak, but in accordance with empirical estimates.

Keywords: Endogenous fluctuations; imperfect competition; strategic interactions; mark-up variability; capital-labor substitution; overlapping generations (search for similar items in EconPapers)
Date: 2009-09
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00194292v1
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Published in Japanese Economic Review, 2009, 60 (3), pp.301-319. ⟨10.1111/j.1468-5876.2008.00452.x⟩

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Related works:
Journal Article: CAPITAL–LABOUR SUBSTITUTION AND ENDOGENOUS FLUCTUATIONS: A MONOPOLISTIC COMPETITION APPROACH WITH VARIABLE MARKUP* (2009)
Working Paper: Capital-labor Substitution and Endogenous Fluctuations: a Monopolistic Competition Approach with Variable Mark-up (2009)
Working Paper: Capital-labor Substitution and Endogenous Fluctuations: a Monopolistic Competition Approach with Variable Mark-up (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00194292

DOI: 10.1111/j.1468-5876.2008.00452.x

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