S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) 경제논집 경제논집 vol.47 (2008)
A Note on Industry Dynamics and Countercyclical Markups
- Kim, Young Sik
- Issue Date
- 서울대학교 경제연구소
- 경제논집, Vol.47 No.2/3, pp. 245-252
- In order to explain countercyclical markups, a simple two-period model of industry
dynamics is constructed where output is produced potentially by two firms which are
subject to idiosyncratic productivity shocks as well as aggregate productivity shocks.
During booms, both firms with low and high productivity stay in the market and engage in
a Bertrand-type competition to yield marginal-cost pricing, implying zero markups. During
recessions, however, firm with low productivity shock decides to exit, allowing the highproductivity
firm to enjoy positive markups as a monopolist in the output market.