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TRANSCRIPT
What drives markups?Evolutionary pricing in an agent-based,
stock-flow consistent, macroeconomic model
Pascal Seppecher1, Isabelle Salle2, Marc Lavoie1
1Université de Paris 13, CEPN, 2Utrecht University School of Economics
Congrès de l’Association Française d’Economie Politique
Thursday, July 6th, 2017
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 1 / 29
En guise d’introduction
How markups move, in response to what, and why, is howevernearly terra incognita for macro. . . we are a long way fromhaving either a clear picture or convincing theories, and this isclearly an area where research is urgently needed.
Blanchard (2008) The State of the Macro
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 2 / 29
Contents
1 ModelA stock-flow consistent agent-based modelA model of collective adaptation
2 SimulationsBaselineTechnological shockBehavioral shock
3 Conclusion
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 3 / 29
Model
1 ModelA stock-flow consistent agent-based modelA model of collective adaptation
2 Simulations
3 Conclusion
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 4 / 29
Model A stock-flow consistent agent-based model
Jamel: an agent-based post-Keynesian model
Agent-based:
multiple agents (hundreds of firms, thousands of households —but only one bank),
heterogenous agents, endogenous heterogeneity,
radical decentralisation: no planner, no auctionneer, no access toany macro-information, all interactions are direct and individual.
Post-Keynesian:
procedural rationality,
fundamental uncertainty,
endogenous money,
stock-flow consistency.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 5 / 29
Model A stock-flow consistent agent-based model
Structure of real flows
Sector 2(consumption
goods)
Sector 3(investment
goods)
Sector 1(intermediate
goods)
Workers
labor
consumption goods
intermediary goods
investment goods
investment goods
investment goods
labor
labor
Capitalists
consumption goods
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 6 / 29
Model A model of collective adaptation
Endogenous heterogeneity of behaviors
Dynamic, endogenous heterogeneity, resulting from the action of twosimultaneous opposing forces:
Differentiation, by innovations and errors,
Homogenization, by selection and imitation.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 7 / 29
Model A model of collective adaptation
Collective (non-intentional) adaptation
Three mechanisms of collective adaptation:
Short-run: heterogeneity.If the diversity of behaviors is large enough, the set contains theadapted behavior to new conditions.
Medium-run: self-reinforcement.The firms with the adapted behaviors grow faster, thus they gainand play a heavier role in the resulting macro behavior.
Long-run: selection and imitation.Competitive pressures force firms that have an inadequatebehavior to adopt observed successful behaviors or to disappear.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 8 / 29
Model A model of collective adaptation
Endogeneisation of the markups ϕ
Heterogenous markups (each firm i has its own markup ϕi ),
The markup of each firm ϕi changes continuously following arandom walk (small random mutations),There are two motives of bankruptcy:
I If the firm becomes insolvent (ie if liabilities > assets),I It the firm loses all its fixed capital.
If a firm i goes bankrupt:I The bank refunds the firm,I The firm gives up its markup,I It adopts a new markup copied on the one of a surviving firm j
ϕi = ϕj
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 9 / 29
Model A model of collective adaptation
Resolution of the high-margins/market-sharestrade-off
⇒ For each firm, there is a trade-off between high margins andmarket shares;
⇒ This trade-off will be solved collectively, ie by endogenouslyeliminating the markups incompatible with market conditions.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 10 / 29
Simulations
1 Model
2 SimulationsBaselineTechnological shockBehavioral shock
3 Conclusion
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 11 / 29
Simulations Baseline
Baseline Simulation:an Emergent Structure of Markups
(a) Baseline simulation
S1 S2 S3
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,0000
0.1
0.2
0.3
0.4
0.5
(b) 100 replications
0 500 1000 1500 20000.0
0.1
0.2
0.3
0.4
0.5
0.6
period
mark-up (S1) mark-up (S2) mark-up (S3)
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 12 / 29
Simulations Baseline
Markups Selection & Endogenous Heterogeneity
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4−0.5
0
0.5
1
Markup
Return
OnAssets
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4−0.5
0
0.5
1
Markup
Return
OnAssets
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4−0.5
0
0.5
1
Markup
Return
OnAssets
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.40
0.05
0.1
0.15
0.2
Markup
Market
shares
(%)
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.40
0.05
0.1
0.15
0.2
Markup
Market
shares
(%)
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.40
0.05
0.1
0.15
0.2
Markup
Market
shares
(%)
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.40
0.05
0.1
0.15
0.2
Markup
Inventories
(%)
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.40
0.05
0.1
0.15
0.2
Markup
Inventories
(%)
−0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.40
0.05
0.1
0.15
0.2
Markup
Inventories
(%)
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 13 / 29
Simulations Baseline
Stability of Relative Prices(a) Sector 1 to Sector 2
Relative price
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,0000
0.1
0.2
0.3
0.4
0.5
(b) Sector 2 to Sector 3
Relative price
0 500 1,000 1,500 2,0000
0.5
1
1.5
2
2.5
(c) Sector 3 to Sector 1
Relative price
0 500 1,000 1,500 2,0000
0.2
0.4
0.6
0.8
1
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 14 / 29
Simulations Baseline
Amounts of Labor and ‘Natural Prices’
We calculate l1; l2; l3, which are the amounts of labor, direct, indirect andhyper-indirect, required for the production of one unit of good in eachsector S1;S2;S3.
l1 =1q1
(1+
k1l3u1dk
)(1)
l2 =1q2
(1+
k2l3u2dk
)+ j2l1 (2)
l3 =u3dk
q3u3dk − k3(3)
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 15 / 29
Simulations Baseline
Relative Prices and Natural Prices(a) Sector 1 to Sector 2
Relative price Natural price
0 500 1,000 1,500 2,0000
0.1
0.2
0.3
0.4
0.5
(b) Sector 2 to Sector 3
Relative price Natural price
0 500 1,000 1,500 2,0000
0.5
1
1.5
2
2.5
(c) Sector 3 to Sector 1
Relative price Natural price
0 500 1,000 1,500 2,0000
0.2
0.4
0.6
0.8
1
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 16 / 29
Simulations Technological shock
Technological Shock on Sector 2
What: simulation of a dramatic, exogenous, technological shock;
Where: Sector 2 (consumption goods);
How: productivity goes from 100 to 200;
When: t = 1000.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 17 / 29
Simulations Technological shock
Macro-Consequences(a) Labor Market
S1 S2 S3
0 500 1,000 1,500 2,0000
50
100
150
200 Shock
(b) Labor Market
Capacity Labor demand Labor Supply Employed
0 500 1,000 1,500 2,0000
2,000
4,000
6,000
8,000
10,000
12,000
14,000 Shock
(c) Workforce Distribution
S1 S2 S3
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
0.2
0.3
0.4
0.5
0.6
0.7 Shock
(d) Ponzi firms
S1 S2 S3
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,0000
0.2
0.4
0.6
0.8
1 Shock
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 18 / 29
Simulations Technological shock
Relative Prices and Natural Prices(a) Sector 1 to Sector 2
Relative price Natural price
0 500 1,000 1,500 2,0000
0.1
0.2
0.3
0.4
0.5
0.6
0.7 Shock
(b) Sector 2 to Sector 3
Relative price Natural price
0 500 1,000 1,500 2,0000
0.5
1
1.5
2
2.5 Shock
(c) Sector 3 to Sector 1
Relative price Natural price
0 500 1,000 1,500 2,0000
0.2
0.4
0.6
0.8
1 Shock
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 19 / 29
Simulations Technological shock
Adaptation of markups
(a) Shock on Baseline
S1 S2 S3
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,0000
0.1
0.2
0.3
0.4
0.5
Shock
(b) 100 replications
0 500 1000 1500 2000
0.0
0.1
0.2
0.3
0.4
0.5
0.6
period
shock on productivity in S2
mark-up (S1) mark-up (S2) mark-up (S3)
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 20 / 29
Simulations Behavioral shock
Behavioral Shock on Sector 2
What: simulation of a dramatic, exogenous, behavioral shock;
Where: Sector 2 (consumption goods);
How: markup goes from approx. 0.2 (on average) to 0.6;
When: t = 1000.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 21 / 29
Simulations Behavioral shock
Adaptation of markups
(a) Average markups (weighted by market shares)
S1 S2 S3
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,0000
0.1
0.2
0.3
0.4
0.5
Shock
(b) Average markups (arithmetic)
S1 S2 S3
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,0000
0.1
0.2
0.3
0.4
0.5
Shock
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 22 / 29
Simulations Behavioral shock
Relative Prices and Values(a) Sector 1 to Sector 2
Relative price Natural price
0 500 1,000 1,500 2,0000
0.1
0.2
0.3
0.4
0.5 Shock
(b) Sector 2 to Sector 3
Relative price Natural price
0 500 1,000 1,500 2,0000
0.5
1
1.5
2
2.5 Shock
(c) Sector 3 to Sector 1
Relative price Natural price
0 500 1,000 1,500 2,0000
0.2
0.4
0.6
0.8
1
Shock
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 23 / 29
Simulations Behavioral shock
Deformation of the production structure
(a) Relative capacities of production
1.1 1.2 1.3 1.4 1.5
S2/S1
0.4
0.5
0.6
0.7
0.8
(S1+
S2)/
S3
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 24 / 29
Conclusion
1 Model
2 Simulations
3 Conclusion
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 25 / 29
Conclusion
Conclusion (1/4)
Our model is a complex system, it includes several interdependentsectors.
These interdependencies are both real (labor and commodities)and monetary (money and debts).
Thanks to the radical decentralization principle of ABM, and guidedby the observations of Alchian (1950), we simulate theendogenous evolution of individual and aggregate pricingbehaviors under the pressure of competition.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 26 / 29
Conclusion
Conclusion (2/4)
As the model includes three industrial sectors, we can observe theemergence of a structure of relative prices.
Relative prices appear to “gravitate” around their “natural prices”,that is, around the ratio of the quantities of labor required for theproduction of the merchandises.
Thus, the system of the “natural prices” dominates the evolution ofthe relative prices (and thus the evolution of the markups, since atthe microeconomic level, markups determine prices).
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 27 / 29
Conclusion
Conclusion (3/4)
Last but not least, it is worth noting that our model is definitivelyeclectic, featuring ingredients from different and sometimes competingschools of thought.
The model includes the post-Keynesian theory of endogenousmoney and its stock-flow consistent approach;
it includes the concerns of Leontief for industrial interdependence;
it is consistent with the classical idea that industrial prices gravitatetowards values that are roughly proportional with the sum of thedirect and indirect quantities of necessary labor, as can be found inSraffa, Pasinetti and Lee;
it also relies on Simon’s procedural rationality and on Alchian’sevolutionary behavior.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 28 / 29
Conclusion
Conclusion (4/4)
Yet, our model is not a chimera. Every ingredient is used because itplays a judicious role in the construction of the model, and results in acoherent synthesis that goes beyond the theoretical borders thatfragment economics. This type of models has then the strongadvantage of (re)activating the dialog and the exchanges betweenparallel and competing schools of thoughts in order to contribute to theemergence of a new, alternative paradigm in (macro)economics.
P. Seppecher, I. Salle, M. Lavoie What drives markups? AFEP Rennes 2017 29 / 29