Taste for Variety and Endogenous Fluctuations in a Monopolistic Competition Model

Bibliographic Data

ID19036751
AuthorsThomas Seegmuller (0000-0001-6842-5695, corresponding author)
Year2008
Volume12
Issue4
Pages561-577
Publication date2008-06-13
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueMacroeconomic Dynamics (JOURNAL)
Journal identifiersISSN: 1365-1005 • E-ISSN: 1469-8056
PublisherCambridge University Press (CUP) (PUBLISHER)
DOI10.1017/s1365100508070314
OpenAlexW2118282998
LanguageEN
Citations received1
References cited24

In past years, imperfect competition has been introduced in several dynamic models to show how markup variability, increasing returns (decreasing marginal cost), and monopoly profits affect the occurrence of endogenous fluctuations. In this paper, we focus on another possible feature of imperfectly competitive economies: consumers' taste for variety as a result of endogenous product diversity. Introducing monopolistic competition [Dixit and Stiglitz (1977), Benassy (1996)] in an overlapping generations model in which consumers have taste for variety, we show that local indeterminacy can occur under the three following conditions: a high substitution between capital and labor, increasing returns arbitrarily small, and a not too elastic labor supply. The key mechanism for this result is based on the fact that, because of taste for variety, the aggregate price decreases with the procyclical product diversity, which has a direct influence on the real wage and the real interest rate

Economics · Imperfect competition · Microeconomics · Monopolistic competition · Monopoly · Perfect competition · Taste · Economic Growth and Productivity · Economic theories and models · Economic Theory and Institutions

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