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

• Author(s): Brito, Paulo ; Costa, Luís F. ; Dixon, Huw
• Date: 2013
• Persistent ID: http://hdl.handle.net/10400.5/30162
• Origin: Repositório da UTL
• Subject(s): Endogenous Markups; Regime Switch; Discontinuity-Induced Bifurcations
• Document Type: Journal article
• Language: English
• Contributor(s): Repositório da Universidade de Lisboa

Description

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 frame-work for understanding regime switching..