Productive Public Expenditure and Imperfect Competition with Endogenous Price Markup: Comment
ISEG/UTL Working Paper No. 24/2006/DE/UECE
8 Pages Posted: 20 Dec 2006
Date Written: October 2006
Abstract
In a recent article Chen et al. (2005) analyse the role of government expenditure in an imperfectly competitive static model, introducing a government-expenditure externality through the production function. Our purpose in the present paper is to argue that the claim from the authors that their model generates an endogenous markup is in our view incorrect. We argue that their model does not contain an endogenous markup, but a fixed one and that their claim is based upon an incorrect interpretation of what is the marginal cost in their own model.
Keywords: Endogenous markup
JEL Classification: E12, E62, H54
Suggested Citation: Suggested Citation