Abstract :
Two businesscyclemodelswithendogenousfirmandproductentryareestimatedby
matchingimpulseresponsestoamonetarypolicyshock.The‘competitioneffect’
impliesthatentrylowersdesiredmarkupsanddampensinflation.Undertranslog
preferences,wherethesubstitutabilitybetweengoodsdependsontheirnumber,we
find evidenceofsuchaneffect.Thatmodelgeneratesmorecountercyclicalmarkups
than DixitandStiglitz(1977) monopolisticcompetitionmodel,wherepricestickinessis
theonlysourceofmarkupfluctuations.Incontrast,amodelwithstrategicinteractions
betweenoligopolisticfirmscannotgenerateanempiricallyrelevantcompetitioneffect
and isstatisticallyequivalenttotheDixit–Stiglitzmodel
