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

Brito, Paulo; Costa, Luís F.; Dixon, Huw

http://hdl.handle.net/10400.5/30162

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Authors

Brito, Paulo

Costa, Luís F.

Dixon, Huw

Abstract(s)

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..

Keywords

Endogenous Markups Regime Switch Discontinuity-Induced Bifurcations

URI

http://hdl.handle.net/10400.5/30162

Citation

Brito, Paulo; Luís F. Costa and Huw Dixon .(2013). “Non-smooth dynamics and multiple equilibria in a Cournot–Ramsey model with endogenous markups”. Journal of Economic Dynamics and Control Volume 37, Issue 11: pp. 2287-2306. (search PDF in 2024).