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On the stabilizing virtues of imperfect competition
Author(s) -
Seegmuller Thomas
Publication year - 2005
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2005.00019.x
Subject(s) - economics , imperfect competition , imperfect , monopoly , microeconomics , competition (biology) , indeterminacy (philosophy) , elasticity (physics) , perfect competition , overlapping generations model , ecology , linguistics , philosophy , physics , quantum mechanics , biology , materials science , composite material
We analyze the stabilizing role of imperfect competition on fluctuations as a result of indeterminacy and endogenous cycles. In this paper, imperfect competition is a source of monopoly profits, because of producer market power. Considering an overlapping generations model with capital accumulation and elastic labor supply, we show that under imperfect competition, the emergence of endogenous fluctuations requires a weaker substitution between production factors than under perfect competition. In this sense, imperfect competition stabilizes fluctuations. However, we find an opposite conclusion concerning the elasticity of labor supply. Indeed, endogenous fluctuations are compatible with a less elastic labor supply under imperfect competition.