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Endogenous Mode of Competition in General Equilibrium

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Author Info
Neary, J Peter
Tharakan, Joe

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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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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Carl Davidson & Raymond Deneckere, 1986. "Long-Run Competition in Capacity, Short-Run Competition in Price, and the Cournot Model," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May. [Downloadable!] (restricted)
    Other versions:
  4. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. Andrew B. Bernard & Stephen Redding & Peter K. Schott & Helen Simpson, 2004. "Relative Wage Variation and Industry Location," CEP Discussion Papers dp0614, Centre for Economic Performance, LSE. [Downloadable!]
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  7. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. J Peter Neary, 2002. "The Road Less Travelled - Oligopoly and Competition Policy in General Equilibrium," Working Papers 200222, School Of Economics, University College Dublin. [Downloadable!]
  10. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March. [Downloadable!] (restricted)
  11. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
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  13. Boccard, Nicolas & Wauthy, Xavier, 2000. "Bertrand competition and Cournot outcomes: further results," Economics Letters, Elsevier, vol. 68(3), pages 279-285, September. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. James W. Friedman, 1988. "On the Strategic Importance of Prices versus Quantities," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 607-622, Winter. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
    Other versions:
  17. Venables, Anthony J., 1990. "International capacity choice and national market games," Journal of International Economics, Elsevier, vol. 29(1-2), pages 23-42, August. [Downloadable!] (restricted)
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  18. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February. [Downloadable!] (restricted)
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  19. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February. [Downloadable!] (restricted)
  20. 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. [Downloadable!] (restricted)
  21. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November. [Downloadable!] (restricted)
  22. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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