Models of Competition between Firms: Endogenous Market Structure in the Kaleckian Model
Metroeconomica, Vol. 64, Issue 1, pp. 103-124, 2013
The purpose of this paper is to incorporate free entry into the Kaleckian model. To this end, we consider a model with monopolistic competition, mark‐up pricing and a free‐entry condition. Using this model, the Kaleckian model is unstable under a wage‐led growth regime, and it is stable under a profit‐led growth regime, when the interest rate is supposed to be constant. Stability under a wage‐led growth can be achieved if the interest rate is allowed to respond positively to capacity utilization. We also find that a goods market policy, but not an income distribution policy, is then effective from an economic growth perspective.
Number of Pages in PDF File: 22
Date posted: January 5, 2013