Non-Smooth Dynamics and Multiple Equilibria in a Cournt-Ramsey Model with Endogenous Markups

Abstract

We consider a Ramsey model with a continuum of Cournotian industries where free entry generates an endogenous markup. The model produces two different regimes, monopoly and oligopoly, resulting in non-smooth dynamics. We analyze the global dynamics of the model, demonstrating the model may exhibit heteroclinic orbits connecting multiple equilibria. Small transitory changes in parameters can lead to large permanent effects and there can be a Rostovian poverty trap separating a low-capital and high-markup equilibrium from a high-capital low-markup equilibrium. The paper applies recent results from applied mathematics for non-smooth dynamic systems.Endogenous markups; Non-smooth dynamics; Discontinuity induced bifurcations; Heteroclinic orbits.