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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.

Suggested Citation

  • Neary, J Peter & Tharakan, Joe, 2006. "Endogenous Mode of Competition in General Equilibrium," CEPR Discussion Papers 5943, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5943
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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