ENDOGENOUS MODE OF COMPETITION IN GENERAL EQUILIBRIUM

J. Peter Neary and Joe Tharakan

Abstract

This paper endogenises the extent of intra-sectoral competition in a multi-sectoral general-equilibrium model of oligopoly and trade. 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 endogenizing the threshold parameter in general equilibrium, we show how exogenous shocks such as globalization and technological change alter the mix of sectors between "more" and "less" competitive, or Bertrand and Cournot, and affect the relative wages of skilled and unskilled workers, even in a "North-North" model with identical countries.

JEL Codes: F10, F12, L13

Keywords: Bertrand and Cournot competition; comparative advantage; GOLE (General Oligopolistic Equilibrium); Kreps-Scheinkman; market integration.

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Click here for the Mathematica code underlying Figure 7.

Please send any comments to: peter.neary@economics.ox.ac.uk

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