Real business cycles with Cournot competition and endogenous entry

Abstract

We introduce strategic interactions with quantity competition à la Cournot and endogenous entry in an RBC model with homogenous goods. In the long run, the steady state mark up is decreasing in the capital share, in the discount factor and in the level of technology, while it is increasing in the rate of bankruptcy and in the entry cost. In the short run, a competition e¤ect ampli…es the propagation of the shocks and generates procyclical pro…ts and countercyclical mark ups. We extend the model to di¤erent forms of competition (as imperfect collusion and Stackelberg competition). The analysis of technology and preference shocks and of the second moments suggests that the model outperforms the RBC in terms of variability of output, labor and, of course, pro…ts and mark ups.JEL classi…cation: L11, E32.

Optimal monetary policy under Calvo pricing with Bertrand competition

“…5 See also Jaimovich and Floetotto (2008), Colciago and Etro (2010), Colciago and Rossi (2011) and Minniti and Turino (2013). Etro (2009) surveys the early literature on endogenous market structures in macroeconomics.…”

Endogenous Market Structure, Occupational Choice, and Growth Cycles

“…2 The papers by Ghironi and Melitz (2005), Etro and Colciago (2010), Colciago and Etro (2010) and Bilbiie et al (2012) analyse and discuss the ability of such frameworks in capturing stylised facts of key economic variables over the cycle. We also incorporate an endogenous market structure, taking the form of an industry whose firms produce and supply intermediate goods in our dynamic model.…”

Endogenous Market Structures and the Business Cycle

“… This work is part of a larger research project which includes the companion paper (Colciago and Etro, 2007). We are grateful to seminar participants at the University of Saint Andrews, CERGE‐EI (Prague), University of Amsterdam, the IMT (Lucca), the University of Rome, the University of Milan, Bicocca, the Catholic University of Leuven, the University of Osaka, the University of Tokyo and the Central Bank of Hungary for important suggestions.…”

“…12 12 In the companion paper (Colciago and Etro, 2007) we have examined other forms of competition as imperfect collusion (through the model of quantity competition with conjectural variations) and Stackelberg competition with a leader choosing production before the followers. …”

“…19 19 There is not an explicit solution for the long run number of firms and mark up, except in the case of homogeneous goods, analysed in Colciago and Etro (2007). …”