“Rotemberg and Woodford (1991) suggest that desired mark-ups over marginal cost fall during a boom because it becomes increasingly difficult to maintain oligopolistic collusion; that is, industries become more competitive in periods of high economic activity. During recessions implicit collusion increases, leading to a countercyclical mark-up that acts as a real rigidity, magnifying the impact on nominal rigidity of relatively small menu costs (D. Romer, 2001).” (SNOWDON & VANE, p. 380)
- Soft market: “desired mark-ups over marginal cost fall during a boom because (…) industries become more competitive in periods of high economic activity”
- Hard market: “During recessions implicit collusion increases, leading to a countercyclical mark-up that acts as a real rigidity” — no caso de seguros, um aumento generalizado de Markup, i.e. Prêmio de Risco
References
- ROTEMBERG, J. J.; WOODFORD, M. Markups and the Business Cycle. NBER Macroeconomics Annual, v. 6, p. 63–129, jan. 1991.
- SNOWDON, B.; VANE, H. R. Modern Macroeconomics: Its Origins, Development and Current State. Edward Elgar Publishing, 2005.