Non-Smooth Dynamics and Multiple Equilibria in a Cournot-Ramsey Model with Endogenous Markups

Abstract

We develop a simple Ramsey model with numerous Cournotian industries where entry generates an endogenous markup. The model produces two different regimes: a monopoly and an oligopoly one. We provide a rigorous study of non-smooth dynamics and we also analyse the global dynamics of the model, demonstrating the model exhibits robust heteroclinic orbits, either of the smooth or the non-smooth type. Similar economies may be in any of these regimes and they may change regime along its convergence path. Fixed costs and elasticities of demand, play a crucial role and changing their values may alter the dynamics in a radical way, either by inducing a discontinuous transition or a discontinuous hysteresis.

Keywords: endogenous mark-ups, non-smooth dynamics, discontinuous induced bifurcations, heteroclinic orbits

JEL Classification: C62, D43, E32