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Endogenous Mode of Competition in General Equilibrium

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  • Neary, J Peter
  • Tharakan, Joe

Abstract

This paper endogenises the extent of intra-sectoral competition in a multi-sectoral model of oligopoly in general equilibrium. Firms choose capacity followed by prices. If the benefits of capacity investment in a given sector are below a threshold level, the sector exhibits Bertrand behaviour, otherwise it exhibits Cournot behaviour. By endogenising the threshold parameter in general equilibrium, we show how exogenous shocks alter the mix of sectors between 'more' and 'less' competitive, or Bertrand and Cournot. The model also has implications for the effects of trade liberalisation and technological change on the relative wages of skilled and unskilled workers.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5943.

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Date of creation: Nov 2006
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Handle: RePEc:cpr:ceprdp:5943

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Related research

Keywords: Bertrand and Cournot competition; GOLE (General Oligoplistic Equilibrium); Kreps-Scheinkman; market integration;

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References

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  1. Andrew B. Bernard & Stephen Redding & Peter K. Schott & Helen Simpson, 2003. "Relative Wage Variation and Industry Location," NBER Working Papers 9998, National Bureau of Economic Research, Inc.
  2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  3. Fung, K C, 1992. "Economic Integration as Competitive Discipline," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 837-47, November.
  4. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  5. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  6. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  7. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  8. Venables, Anthony J., 1988. "International Capacity Choice and National Market Games," CEPR Discussion Papers 277, C.E.P.R. Discussion Papers.
  9. Lawrence, Colin & Spiller, Pablo T, 1983. "Product Diversity, Economies of Scale, and International Trade," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 63-83, February.
  10. Julio J. Rotemberg & Garth Saloner, 1989. "Tariffs vs Quotas with Implicit Collusion," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 237-44, May.
  11. Dixit, Avinash K. & Grossman, Gene M., 1986. "Targeted export promotion with several oligopolistic industries," Journal of International Economics, Elsevier, vol. 21(3-4), pages 233-249, November.
  12. BOCCARD , Nicolas & WAUTHY, Xavier, . "Bertrand competition and Cournot outcomes: futher results," CORE Discussion Papers RP -1474, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. J Peter Neary, 2002. "The Road Less Travelled - Oligopoly and Competition Policy in General Equilibrium," Working Papers 200222, School Of Economics, University College Dublin.
  14. Ottaviano, Gianmarco Ireo Paolo & Thisse, Jacques-François, 1998. "Agglomeration and Trade Revisited," CEPR Discussion Papers 1903, C.E.P.R. Discussion Papers.
  15. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
  16. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May.
  17. Paul Madden, 1998. "Elastic demand, sunk costs and the Kreps-Scheinkman extension of the Cournot model," Economic Theory, Springer, vol. 12(1), pages 199-212.
  18. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
  19. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
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