Reference : Capacity Utilization and Market Power
Scientific journals : Article
Business & economic sciences : Macroeconomics & monetary economics
Capacity Utilization and Market Power
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]
Journal of Economic Dynamics and Control
Yes (verified by ORBilu)
[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.

File(s) associated to this reference

Fulltext file(s):

Open access
97-Capacity Utilization-Carlos III WP962414.pdfAuthor preprint620.42 kBView/Open

Bookmark and Share SFX Query

All documents in ORBilu are protected by a user license.