Cyclical Markups (Classic Reprint): Theories and Evidence: Theories and Evidence (Classic Reprint) - Softcover

Rotemberg, Julio J.

9781332257027: Cyclical Markups (Classic Reprint): Theories and Evidence: Theories and Evidence (Classic Reprint)

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ISBN 10: 133225702X ISBN 13: 9781332257027

Verlag: Forgotten Books, 2018

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Excerpt from Cyclical Markups: Theories and Evidence

Real wages are not strongly countercyclical. As pointed out already by Dunlop (1938) and Tarshis this presents difficulties for models in which technological possibilities do not vary at business cycle frequencies. For, why should firms be willing to pay more to workers when output is high and hence the marginal product of labor is low? One obvious possibility, suggested by Keynes is that the desired markup of price over marginal cost is low when output is high.

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Excerpt from Cyclical Markups: Theories and Evidence

If changes in aggregate demand were an important source of macroeconomic fluctuations, real wages would be countercyclical unless markups of price over marginal cost were themselves countercyclical. We thus examine three theories of markup variation at cyclical frequencies. The first assumes only that the elasticity of demand is a function of the level of output. In the second, firms face a trade off between exploiting their existing customers and attracting new customers. Markups then depend also on rates of return and future sales expectations, a high rate of return or expectations of low sales growth lead firms to assign a lower value to future revenues from new customers. Firms thus raise prices and markups. In the third theory, markups are chooen to ensure that no one deviates from an (implicitly) collusive understanding. Increases in rates of return or pessimistic expectations then lead firms to be less concerned with future punishments SO that markups fall. Aggregate post-war data from the U.S. are most consistent with the predictions of the implicit collusion model.

About the Publisher

Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com

This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.

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