Imperfect Competition and Macroeconomic Fluctuations

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The macroeconomic consequences of imperfect competition have attracted increasing research interest in recent years. Models of imperfectly competitive product markets have been developed by the principal investigator which provide important insights into economies with inefficient but rankable equilibrium outcomes. The coordination problem, on which he focuses, consists in how individual agents acting non-cooperatively may move from an inferior equilibrium position to a better one. If optimizing individual agents lack the capability to coordinate their actions to reach a preferred equilibrium, then an economy can become stuck at bad outcomes relative to the set of equilibria. A key question that arises is what role the government might play in obtaining or facilitating the necessary coordination. One emphasis of the proposed research is on the dynamic behavior of these economies through both entry and exit of firms and the intertemporal linkage created by inventory holdings. Second, it is planned to analyze the role of strategic complementarities in synchronizing discrete decisions of firms. Strategic complementarity appears in multi-sector models of imperfectly competitive economies due to the demand flows across sectors. As a consequence of these complementarities, shocks in these models also are propagated across time and over sectors. The third main research emphasis of the research is on extensive form games. These are studied to gain a better understanding of the game theoretic foundation of coordination problems and to shed light on the equilibrium selection process in economic settings with multiple, (Pareto-)ranked, equilibria.