Working Paper: CEPR ID: DP5943
Authors: J. Peter Neary; Joe Tharakan
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.
Keywords: Bertrand and Cournot competition; General oligopolistic equilibrium; Market integration
JEL Codes: F10; F12; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exogenous shocks (F41) | competitive behavior of sectors (L13) |
| trade liberalization (F13) | competitive behavior of sectors (L13) |
| exogenous shocks (F41) | threshold for Bertrand or Cournot behavior (D43) |
| threshold for firms to exhibit Bertrand or Cournot behavior (D43) | competitive behavior of firms (L13) |
| changes in factor prices (F16) | competitive behavior of sectors (L13) |
| shocks (E32) | changes in relative wages of skilled and unskilled workers (F66) |
| changes in relative wages of skilled and unskilled workers (F66) | overall market competition (L13) |