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A Critical Assessment of the Role of Imperfect Competition in Macroeconomics

In: Market Behaviour and Macroeconomic Modelling

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  • Dennis W. Carlton

Abstract

Models of imperfect competition have proliferated in the macroeconomics literature.1 These models have been used in both the business cycle literature, where the emphasis is on Keynesian type short-run movements in output, and in the growth literature, where long run properties of the economy are analyzed. These models involve firms having market power whereby a firm can profitably set price above marginal cost. Although these models have improved and made more realistic our understanding of certain economic forces, I claim that it is too much to expect these models based solely on market power to provide fundamentally new insights into how an economy works and that there are probably better areas to pursue to look for new insights into macroeconomics.2

Suggested Citation

  • Dennis W. Carlton, 1998. "A Critical Assessment of the Role of Imperfect Competition in Macroeconomics," Palgrave Macmillan Books, in: Steven Brakman & Hans Ees & Simon K. Kuipers (ed.), Market Behaviour and Macroeconomic Modelling, chapter 3, pages 73-104, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-26732-3_3
    DOI: 10.1007/978-1-349-26732-3_3
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    Cited by:

    1. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135, Elsevier.
    2. Matheron, Julien & Maury, Tristan-Pierre, 2004. "The welfare cost of monopolistic competition: a quantitative assessment," Economic Modelling, Elsevier, vol. 21(6), pages 933-948, December.

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    More about this item

    Keywords

    Marginal Cost; Intellectual Property; Business Cycle; Market Power; Fiscal Policy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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