Rodolphe Dos Santos Ferreira

Horizontal and vertical differentiation: The Launhardt model

We show how the spatial duopoly proposed by Launhardt in 1885, where firms have access to different transportation technologies, allows one to model in a simple and elegant way the two major types of product differentiation, i.e. horizontal and vertical. We consider the cases where firms are located near the market end points or near the market center. Launhardts analysis of price determination is then extended by allowing firms to choose strategically their transportation rates. Subgame perfect Nash equilibria involve minimum (maximum) vertical product differentiation when horizontal product differentiation is large (small) enough.

Competition for market share or for market size: oligopolistic equilibria with varying competitive toughness

For an industry producing a composite commodity, we propose a comprehensive concept of oligopolistic equilibrium, allowing for a parameterized continuum of regimes varying in competitive toughness. Each firm sets simultaneously its price and its quantity under two constraints, relative to its market share and to market size. The price and the quantity equilibrium outcomes always belong to the set of oligopolistic equilibria. When firms are identical and we let their number increase, any sequence of symmetric oligopolistic equilibria converges to the monopolistic competition outcome. Further results are derived in the symmetric CES case, concerning in particular the collusive solution enforceability.

Market power, coordination failures and endogenous fluctuations

vVe analyse an overlapping generations economy with Cournotian monopolistic competition in the produced goods markets and perfect competition in the labour market. All prices are perfectly flexible and no adjustments costs are introduced. We show that these features lead to properties qualitatively different from those obtained when all markets are perfectly competitive. First there is a possibility of multiple Pareto-ranked temporary or stationary equilibria. Second, a preliminary analysis of the intertemporal equilibria shows that imperfect competition opens up new possibilities of endogenous fluctuations, and may lead to non-monotonicity of all equilibria in prices and output. These results are essentially based on two features, naturally associated with imperfect competition, increasing returns to scale and the variability of oligopolistic market power as a consequence of the variability of demand elasticity.

Price–quantity competition with varying toughness☆

For an industry producing a single homogeneous good, we define and characterize the concept of oligopolistic equilibrium, allowing for a parameterized continuum of regimes with varying competitive toughness. This parameterization will appear to be equivalent to the one used in the empirical literature. The Cournot and the competitive outcomes coincide, respectively, with the softest and the toughest oligopolistic equilibrium outcome. The concept offers an alternative to the conjectural variations approach with better foundations. It can be viewed as a canonical description of oligopolistic behavior which can receive different theoretical justifications and provide a convenient tool for modeling purposes. Two illustrative cases (linear and isoelastic demands) are developed and the possibility of endogenizing (strategically) the choice of competitive toughness by the firms is examined.

Oligopolistic Competition as a Common Agency Game

In applying the common agency framework to the context of an oligopolistic industry, we want to go beyond the classical dichotomy between Cournot and Bertrand competition. We define two games, the oligopolistic game and the corresponding concept of oligopolistic equilibrium, and an associated auxiliary game that can be interpreted as a common agency game and that has the same set of equilibria. The parameterization of the set of (potential) equilibria in terms of competitive toughness is derived from the first order conditions of this auxiliary game. The enforceability of monopolistic competition, of price and quantity competition, and of collusion is examined in this framework. We then describe the (reduced) set of equilibria one would obtain, first in the nonintrinsic case and then in the case where a global approach would be adopted instead of partial equilibrium approach. Finally, we illustrate the use of the concept of oligopolistic equilibrium and of the corresponding parameterization by referring to the standard case of symmetric quadratic utility.

Strategic R&D investment, competitive toughness and growth

We develop an overlapping generations model, where firms (as consumers) have a two-period life, investing in R&D during the first period and competing in the product market in the second period. The number of firms is endogenously determined and the set of successful firms by a Bernoullian random process. We show the possibility of an inverted-U relationship between innovation and product market competition for an individual industry, based on the possibility for non-successful firms to remain productive. When the relative cost advantage of successful firms is large (large innovation step or small spillovers) this possibility results from the probabilistic nature of the model.

Contestability and the Indeterminacy of Free‐Entry Equilibria

A general notion of market perfect contestability is introduced. It coincides with the definition given by Baumol et al. under Bertrand competition, but is compatible with other forms of competition : Cournot competition as well as monopolistic competition. Using this notion, we illustrate the fact that the number of active firms in free entry equilibrium may be largely indeterminate and different levels of positive profits may in many cases be sustained. This is shown to be true, in spite of market perfect contestability, either under Cournot competition or under product differentiation. Examples are given for both cases. Appropriate conditions of increasing returns are required.

Imperfect Competition and the Trade Cycle: Aborted Guidelines from the Late 1930s

The cyclical behavior of wages and prices was a central topic in trade cycle analysis on the eve of the Second World War. Keynes and Harrod independently referred in the same year to the supposed countercyclicality of real wages, a feature that was contested soon after, on empirical grounds, by Dunlop and Tarshis. An ambitious research program integrating macroeconomics and imperfect competition was elaborated to reconcile theory and observations, but was suddenly discontinued. This program was sufficiently ripe to include the main ingredients of the New Keynesian research program, which was only put forth in the 1980s.

Reflections on the Microeconomic Foundations of the Keynesian Aggregate Supply Function

The theoretical goal of the General Theory has two main components: a negative one and a positive one. The negative component is a critique of classical theory in general and in particular of Say’s law, which Keynes sees as its core. The positive one is first of all an attempt to replace the false dichotomy between value theory and monetary theory by the proper dichotomy between the theory of the individual firm or industry and the theory of output and employment as a whole. We do not introduce here the shorter expressions ‘microeconomic theory’ and ‘macroeconomic theory’ which might cause confusion by bringing in yet a third distinction which could be taken to refer to two different modes rather than to two distinct objects of analysis.

Mr Keynes, the Classics and the new Keynesians: A suggested formalisation

Abstract The paper suggests a new Keynesian model of the General Theory. A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS–LM the generality of Keyness theory, clarifying the distinction between voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keyness relative wage hypothesis.The paper suggests a new Keynesian model of the General Theory . A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS-LM the generality of Keyness theory, clarifying the distinction between voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keyness relative wage hypothesis.