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.

Colciago, A., Etro, F. (2007). Endogenous Market Structure and the Business Cycle [Working paper del dipartimento].

Endogenous Market Structure and the Business Cycle

COLCIAGO, ANDREA;ETRO, FEDERICO
2007

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.
Working paper del dipartimento
Scientifica
Endogenous Market Structure; Firms?Entry; Business Cycle
English
Colciago, A., Etro, F. (2007). Endogenous Market Structure and the Business Cycle [Working paper del dipartimento].
Colciago, A; Etro, F
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/23155
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