Reference : Capacity Utilization and Market Power
Scientific journals : Article
Business & economic sciences : Macroeconomics & monetary economics
http://hdl.handle.net/10993/11651
Capacity Utilization and Market Power
English
Fagnart, J.F. [University of Copenhagen and FEDEA. Madrid]
Licandro, O. [FEDEA and Universidad Carlos III, Madrid]
Sneessens, Henri mailto [Université Catholique de Louvain - UCL > IRES, Institut de recherches économiques et sociales]
1997
Journal of Economic Dynamics & Control
22
123-140
Yes (verified by ORBilu)
International
0165-1889
[en] Capacity utilization ; Quantity constraints ; Monopolistic competition ; Markups
[en] We propose a theoretical macroeconomic model where capacity underutilization follows from idiosyncratic demand uncertainty at the time monopolistic firms must choose their productive capacity. After their investment decision, firms facing a low demand will typically prefer to run excess capacities rather than reduce their profit margin; firms at full capacity will respond to demand fluctuations solely by price adjustments. We show that the proportion of firms with idle capacities influences crucially the short-run response of the economy to exogenous disturbances and, in particular, the relative importance of price and quantity adjustments.
Researchers
http://hdl.handle.net/10993/11651
http://www.sciencedirect.com/science/journal/01651889

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