Search in the ProductMarket and the Real Business Cycle
Thomas, Y. MATH€
Empirical evidence suggests thatmost firms operate in imperfectly competitivemarkets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and formlong-termrelationships. Price bargain results in both wholesaler and retailer markups, depending on firmsÕ relative bargaining power. We simulate themodel to explore the role of product market search frictions in business cycles. We show that the way search costs are modelled is crucial to provide a realistic picture of firmsÕ business environment and improve the cyclical properties of an otherwise standard real business cycle model.
Business cycle, Frictions, Product market, Price bargain
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