Real business cycles with Cournot competition and endogenous entry

Abstract

We introduce strategic interactions with quantity competition a` la Cournot and endogenous entry in an RBC model with homogenous goods. In the long run, the steady state mark up is decreasing in the capital share, in the discount factor and in the level of technology, while it is increasing in the rate of bankruptcy and in the entry cost. In the short run, a competition effect amplifies the propagation of the shocks and generates procyclical profits and countercyclical mark ups. We extend the model to different forms of competition (as imperfect collusion and Stackelberg competition). The analysis of technology and preference shocks and of the second moments suggests that the model outperforms the RBC in terms of variability of output, labor and, of course, profits and mark ups.