Perfect versus imperfect direct advertising,and market performance |
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Authors: | Lola?Esteban Email author" target="_blank">José?M?HernándezEmail author |
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Institution: | 1.Department of Economics, Management and Quantitative Methods (DEMM),University of Milan,Milan,Italy;2.National Research University Higher School of Economics,St. Petersburg,Russia |
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Abstract: | We present a model of economic growth driven by horizontal innovation in which, unlike the existing literature, the final output sector employs a non-specified, non-CES, additive production function. Our motivation in conducting such analysis is based on the recognition that the use of a CES aggregate production function in the final output sector leads to the unrealistic conclusion that the gross markup of price over marginal costs set in the monopolistically-competitive intermediate sector is constant. We derive necessary and sufficient conditions for an equilibrium with perfect competition in the final output market to exist even in the presence of a non-CES technology. These conditions generalize the usual properties of the CES case. We also analyze the long-run relation between economic growth and variable markups. |
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