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A Computable General Equilibrium Model for Open Economies with Imperfect Competition and Product Differentiation

Author

Listed:
  • De Santis, Roberto A.

    (European Central Bank)

Abstract

This paper corrects a shortcoming in the literature on computable general equilibrium models and imperfect competition with free entry and increasing returns to scale. The trade integration simulations applied to the US suggest that the shortcoming is quantitatively insignificant if key conditions are fulfilled. The model also shows how to incorporate iceberg trade costs in both constant and increasing returns to scale sectors. A fall in trade costs can have a large impact on welfare as less resources are wasted. In addition, the same model is proposed for competition policy experiments against illegal collaboration among competitors. The results of the simulations provide interesting insights, showing extraordinarily large welfare gains if competition policies are introduced to break the collusive behaviour in the US market among either domestic firms or foreign firms. However, if these policies are brought in to weaken the collusive behaviour among exporting firms, then a welfare loss can be generated because of a large deterioration of terms of trade.

Suggested Citation

  • De Santis, Roberto A., 2002. "A Computable General Equilibrium Model for Open Economies with Imperfect Competition and Product Differentiation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 311-338.
    • Handle: RePEc:ris:integr:0197
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    Citations

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    Cited by:

    1. 武田 史郎, 2007. "貿易政策を対象とした応用一般均衡分析," Discussion Papers (Japanese) 07010, Research Institute of Economy, Trade and Industry (RIETI).
    2. Aidan Islyami, 2009. "Trade in Intermediate Producer Services under Imperfect Competition," FIW Working Paper series 020, FIW.
    3. Yang, Dong & Zhang, Lingge & Luo, Meifeng & Li, Feng, 2020. "Does shipping market affect international iron ore trade?– An equilibrium analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 144(C).
    4. 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.
    5. Natalia Gennadyevna Zakharchenko & Olga Valeryevna Dyomina, 2015. "Modelling Energy - Economy Interactions: The Far East Experience," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 1, pages 62-90.

    More about this item

    Keywords

    trade costs; competition policies; increasing returns; conjectural variation; CGE analysis;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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