Search in the product market and the real business cycle

Empirical evidence suggests that most firms operate in imperfectly competitive markets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and form long-term relationships. Price bargain results in both wholesaler and retailer mark ups, which depend on firm...

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Bibliographic Details
Published in:Journal of economic dynamics & control 2011-08, Vol.35 (8), p.1172-1191
Main Authors: Mathä, Thomas Y., Pierrard, Olivier
Format: Article
Language:English
Subjects:
Bargaining
Business cycle
Business cycle Frictions Search Product market Price bargain
Business cycles
Econometric models
Economic models
Enterprises
Frictions
Imperfect competition
Price bargain
Pricing
Product development
Product market
Quantitative Finance
Search
Simulation
Studies
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Summary:Empirical evidence suggests that most firms operate in imperfectly competitive markets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and form long-term relationships. Price bargain results in both wholesaler and retailer mark ups, which depend on firms' relative bargaining power. We simulate the general equilibrium model and explore the role of product market search frictions for business cycles. We conclude from the simulation exercise that incorporating product market search structure and shocks improve the standard real business cycle model to reproduce US business cycle fluctuations.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2011.03.001