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Monopoly Power, Increasing Returns to Variety, and Local Indeterminacy

Author

Listed:
  • Juin-jen Chang

    (Academia Sinica)

  • Chun-chieh Huang

    (National Chengchi University)

  • Hsiao-wen Hung

    (Tamkang University)

Abstract
The required degree of increasing returns-to-scale to satisfy the Benhabib-Farmer condition for local indeterminacy is too high to be empirically plausible. In the paper, we develop a natural extension of Benhabib and Farmer's (1994, Journal of Economic Theory) model by introducing aggregation increasing returns to variety. It is shown that an increase in the degree of monopoly power can create increasing returns to an expansion in variety which decreases reliance on the degree of increasing returns-to-scale in production for generating local indeterminacy. As the degree of monopoly power increases, the required degree of increasing returns for local indeterminacy decreases monotonically. As a result, our numerical analysis indicates that the required degree of increasing returns for local indeterminacy can be easily located in the empirically plausible range. (Copyright: Elsevier)

Suggested Citation

  • Juin-jen Chang & Chun-chieh Huang & Hsiao-wen Hung, 2011. "Monopoly Power, Increasing Returns to Variety, and Local Indeterminacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 384-388, April.
    • Handle: RePEc:red:issued:08-120
    DOI: 10.1016/j.red.2009.10.007
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    References listed on IDEAS

    as
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    8. Catherine J. Morrison, 1990. "Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach," NBER Working Papers 3355, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Pavlov, Oscar & Weder, Mark, 2012. "Variety matters," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 629-641.
    2. Pavlov, Oscar, 2016. "Can firm entry explain news-driven fluctuations?," Economic Modelling, Elsevier, vol. 52(PB), pages 427-434.
    3. Chang, Juin-Jen & Lai, Ching-Chong & Liao, Chih-Hsing, 2017. "Welfare Cost of Inflation: The Role of Price Markups and Increasing Returns to Production Specialization," MPRA Paper 77753, University Library of Munich, Germany.
    4. Hsieh Hui-ting & Lai Ching-chong & Chen Kuan-jen, 2015. "A Macroeconomic Model of Imperfect Competition with Patent Licensing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(4), pages 1579-1618, October.
    5. Cheng-wei Chang & Ching-chong Lai, 2021. "Optimal fiscal policies and market structures with monopolistic competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(6), pages 1385-1411, December.
    6. Grossmann, Volker & Steger, Thomas M. & Trimborn, Timo, 2013. "The macroeconomics of TANSTAAFL," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 76-85.
    7. Bucci, Alberto, 2013. "Returns to specialization, competition, population, and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 2023-2040.
    8. Bucci Alberto & Raurich Xavier, 2017. "Population and Economic Growth Under Different Growth Engines," German Economic Review, De Gruyter, vol. 18(2), pages 182-211, May.
    9. Cheng-Wei Chang & Ching-Chong Lai & Juin-Jen Chang, 2018. "Fiscal Stimulus and Endogenous Firm Entry in a Monopolistic Competition Macroeconomic Model," The Japanese Economic Review, Springer, vol. 69(2), pages 207-225, June.
    10. Kuan‐jen Chen & Ching‐chong Lai & Ting‐wei Lai, 2021. "Macroeconomic instability and targeting rules for monetary policy in an endogenously growing small open economy," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 904-926, September.
    11. Chang Cheng-Wei & Lai Ching-Chong, 2017. "Macroeconomic (in)stability and endogenous market structure with productive government expenditure," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(2), pages 1-16, April.
    12. Juin‐Jen Chang & Jang‐Ting Guo & Wei‐Neng Wang, 2021. "On Endogenous Business Cycles Under Increasing Returns To Variety And Sector‐Specific Externality," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 532-548, January.

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    More about this item

    Keywords

    Local indeterminacy; Increasing returns to variety; Endogenous entry;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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