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Modelling Policy Issues in a World of Imperfect Competition

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  • Egbert Dierker
  • Birgit Grodal

Abstract

General equilibrium theory constitutes a sound basis for the discussion of policy issues if firms do not have market power. However, if firms influence prices strategically, the concept of profits loses its meaning due to the price normalization problem. Hence, it is unclear how to model the behavior of oligopolistic firms. In order to provide a conceptual foundation for the analysis of policy issues in the case of imperfect competition, we discuss ways to formulate the objective of a strategic firm. In particular, we investigate the concept of real wealth maximization that is based on profits as well as on shareholders' aggregate demand.

Suggested Citation

  • Egbert Dierker & Birgit Grodal, 1998. "Modelling Policy Issues in a World of Imperfect Competition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 153-179, March.
    • Handle: RePEc:bla:scandj:v:100:y:1998:i:1:p:153-179
    DOI: 10.1111/1467-9442.00095
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    Citations

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    Cited by:

    1. J. Peter Neary, 2016. "International Trade in General Oligopolistic Equilibrium," Review of International Economics, Wiley Blackwell, vol. 24(4), pages 669-698, September.
    2. Ramón Torregrosa, 2008. "Macroeconomic effects of an indirect tax substitution," Journal of Economics, Springer, vol. 94(3), pages 199-221, September.
    3. Dirk Willenbockel, 2005. "The Price Normalisation Problem in General Equilibriun Models with Oligopoly Power: An Attempt at Perspective," GE, Growth, Math methods 0505002, University Library of Munich, Germany.
    4. Francesca Busetto & Giulio Codognato & Giorgia Pavan & Simone Tonin, 2023. "Cournotian duopolistic firms may be Walrasian: a case in the Gabszewicz and Vial model," Journal of Economics, Springer, vol. 140(2), pages 121-140, October.
    5. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2003. "Cournot-Nash Competition in a General Equilibrium Model of International Trade," Discussion Papers 03-28, University of Copenhagen. Department of Economics.
    6. David R. Collie, 2019. "Taxation under oligopoly in a general equilibrium setting," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(4), pages 738-753, August.
    7. WILLENBOCKEL Dirk, 2010. "The Numeraire Problem in General Equilibrium Models with Market Power: Much Ado About Nothing?," EcoMod2003 330700152, EcoMod.
    8. Chang, Winston W. & Chen, Tai-Liang & Saito, Tetsuya, 2021. "Formation of symmetric free-trade blocs, optimal tariff structure, and world welfare," Journal of Asian Economics, Elsevier, vol. 77(C).
    9. Willenbockel, Dirk, 2004. "Specification choice and robustness in CGE trade policy analysis with imperfect competition," Economic Modelling, Elsevier, vol. 21(6), pages 1065-1099, December.
    10. J. Peter Neary, 2002. "Globalisation and market structure," Working Papers 200220, School of Economics, University College Dublin.

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