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Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy

Author

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  • Abayasiri-Silva, Kaludura
  • Horridge, Mark

Abstract

Recently some researchers have suggested that economies of scale and imperfect competition play a major role in determining the effects of exogenous policy shocks. Thus they have emphasised the need to incorporate industrial organisation features into computable general equilibrium (CGE) models. However, our knowledge of this new paradigm is still in its infancy—it is not yet clear how models of this type should be specified and to what extent their predictions are sensitive to the choice of specification. This paper describes a 23-sector CGE model of the Australian economy, based on ORANI and on Horridge (1987a and 1987b), which incorporates economies of scale and imperfect competition. The model is used to investigate whether adding these new features affects simulation results. We present results for three different types of non-competitive regime and compare these with results generated by a traditional (constant returns and perfect competition) version of the same model.

Suggested Citation

  • Abayasiri-Silva, Kaludura & Horridge, Mark, "undated". "Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy," Center of Policy Studies (COPS) Impact Project Papers 266355, Monash University Center of Policy Studies.
    • Handle: RePEc:ags:copspp:266355
    DOI: 10.22004/ag.econ.266355
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    2. Peter Dixon & Michael Jerie & Maureen Rimmer, 2016. "Modern Trade Theory for CGE Modelling: The Armington, Krugman and Melitz Models," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 1-110, June.
    3. Minor, Peter J., 2010. "Time as a Barrier to Trade: A GTAP Database of ad valorem Trade Time Costs," Conference papers 331960, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Abayasiri-Silva, Kaludura & Horridge, Mark, "undated". "THE EFFECTS OF CURRENT FISCAL RESTRAINT ON THE AUSTRALIAN ECONOMY: An Applied General Equilibrium Analysis with Imperfect Competition," Center of Policy Studies (COPS) Impact Project Papers 266362, Monash University Center of Policy Studies.
    5. Glyn Wittwer & Marnie Griffith, 2011. "Modelling drought and recovery in the southern Murray‐Darling basin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 342-359, July.
    6. Peter B. Dixon & Maureen T. Rimmer, 2010. "Simulating the U.S. Recession with and without the Obama package: the role of excess capacity," Centre of Policy Studies/IMPACT Centre Working Papers g-193, Victoria University, Centre of Policy Studies/IMPACT Centre.
    7. Hao Xiao & Shujin Zhu & Lafang Wang, 2009. "Will the financial crisis become the turning point for China's auto industry? A dynamic computable general equilibrium analysis with imperfect competition," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(4), pages 477-497.
    8. Naranpanawa, Athula & Arora, Rashmi, 2014. "Does Trade Liberalization Promote Regional Disparities? Evidence from a Multiregional CGE Model of India," World Development, Elsevier, vol. 64(C), pages 339-349.
    9. Productivity Commission, 2008. "Modelling Economy-wide Effects of Future Automotive Assistance," Research Reports, Productivity Commission, Government of Australia, number 30, January.
    10. Betarelli, Admir Antonio & Domingues, Edson Paulo & Hewings, Geoffrey John Dennis, 2020. "Transport policy, rail freight sector and market structure: The economic effects in Brazil," Transportation Research Part A: Policy and Practice, Elsevier, vol. 135(C), pages 1-23.
    11. Peter B. Dixon & Mark R. Picton & Maureen T. Rimmer, 2004. "Payroll Taxes: Thresholds, Firm Sizes, Dead‐weight Losses and Commonwealth Grants Commission Funding," The Economic Record, The Economic Society of Australia, vol. 80(250), pages 289-301, September.
    12. Andrew Mold & Rodgers Mukwaya, 2016. "Modelling the economic impact of the tripartite free trade area: Its implications for the economic geography of Southern, Eastern and Northern Africa," Journal of African Trade, Springer, vol. 3(1), pages 57-84, March.
    13. Naranpanawa, Athula & Arora, Rashmi, 2012. "Trade Liberalisation and Regional Disparities: Evidence from a Multi-Regional General Equilibrium Model of India," Conference papers 332270, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    14. Koushik Das & Pinaki Chakraborti, 2012. "International Trade, Environment and Market Imperfection: A Computable General Equilibrium Analysis for India," South Asian Journal of Macroeconomics and Public Finance, , vol. 1(2), pages 157-190, December.

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    Keywords

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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