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Asset bubbles and product market competition

Author

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  • Queirós, Francisco

    (CSEF and Department of Economics and Statistics, Università di Napoli Federico II)

Abstract

This paper studies the interplay between asset bubbles and product market competition. It offers two main insights. The first is that imperfect competition creates a wedge between interest rates and the marginal product of capital. This makes rational bubbles possible even when there is no overaccumulation of capital. The second is that, when providing a production subsidy, bubbles stimulate competition and reduce monopoly rents. I show that bubbles can destroy efficient investment and have ambiguous welfare consequences. However, when they stimulate competition, they can have crowding-in effects on capital.

Suggested Citation

  • Queirós, Francisco, 2024. "Asset bubbles and product market competition," Theoretical Economics, Econometric Society, vol. 19(1), January.
    • Handle: RePEc:the:publsh:5066
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    More about this item

    Keywords

    Rational bubbles; overaccumulation; competition; market power;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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