| We examine in this paper whether the interaction between buyers and sellers of durable goods with monopoly power can explain certain characteristics of the business cycle, such as the persistence of high employment during a boom and countercyclical markups.;We also extend the analysis to more general market structures, such as oligopolies, and study the role of market concentration in more detail. In particular, the more concentrated the market, the more persistent are the effects of variations in demand on output.;We then examine the responses of prices and outputs in a general equilibrium model that incorporates durable goods and imperfect competition, and which is subject to stochastic variations in government purchases of durables. We find that when prices of capital goods are allowed to differ from those of household durables, because for instance they are supplied by a competitive industry, then the effects of a shock on aggregate output, investment and employment are significantly more persistent in this model than in the perfectly competitive counterpart. However, the relative prices of durables are essentially acyclical with respect to the output of household durables and procyclical with respect to aggregate output. Real wages are procyclical.;We first analyze the sale of durable goods by a monopolist within a partial equilibrium context and a stochastic environment. We characterize the equilibrium when demand is linear, and we study the effects of various types of shocks on prices and output. We find that under elasticity-preserving shocks to demand, the price is positively correlated with contemporaneous output, but that it is negatively correlated with the contemporaneous stock and with lagged output. Furthermore, the effects of a shock on output are significantly more persistent than under perfect competition. Under shocks to the interest rate, if costs of production are small enough relative to the price, the latter is negatively correlated with contemporaneous output. |
