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Non-smooth dynamics and multiple equilibria in a Cournot-Ramsey model with endogenous markups

Brito, Paulo B., Costa, Luís F. and Dixon, Huw David 2013. Non-smooth dynamics and multiple equilibria in a Cournot-Ramsey model with endogenous markups. Journal of Economic Dynamics and Control 37 (11) , pp. 2287-2306. 10.1016/j.jedc.2013.05.014

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Abstract

We consider a Ramsey model with a continuum of Cournotian industries where free entry generates an endogenous markup. The model produces two different regimes, monopolistic and Cournotian monopolistic competition, resulting in non-smooth dynamics. We analyze the global dynamics of the model, demonstrating it may exhibit heteroclinic orbits connecting multiple equilibria. Small transitory changes in parameters can lead to large permanent effects and there can be a poverty trap separating a low-capital and high-markup equilibrium from a high-capital low-markup equilibrium. We apply results from the mathematics of non-smooth dynamic systems, which provide a more general framework for understanding regime switching.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Uncontrolled Keywords: Endogenous markups; Regime switch; Discontinuity-induced bifurcations
Publisher: Elsevier
ISSN: 0165-1889
Last Modified: 04 Jun 2017 06:15
URI: http://orca.cf.ac.uk/id/eprint/57771

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