Fagnart, Jean-François
[UCL]
Licandro-Goldaracena, Omar
[UCL]
Sneessens, HR.
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.
Bibliographic reference |
Fagnart, Jean-François ; Licandro-Goldaracena, Omar ; Sneessens, HR.. Capacity utilization and market power. In: Journal of Economic Dynamics and Control, Vol. 22, no. 1, p. 123-140 (1997) |
Permanent URL |
http://hdl.handle.net/2078.1/46631 |