International trade with endogenous mode of competition in general equilibrium

Abstract

This paper endogenizes 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 behavior, otherwise it exhibits Cournot behavior. 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.

Financial constraints and international trade with endogenous mode of competition

“…This supply effect is particularly interesting in an oligopolistic set-up, where firms make their decision in two stages, first choosing investment capacity and then determining prices. In such a framework, as shown by Kreps and Scheinkman (1983), Maggi (1996) and Neary and Tharakan (2012), the level of production capacities influences the degree of competitive behavior as well as prices and profit. For example, Neary and Tharakan (2012) design a capacityprice competition model in a general equilibrium in which sectors are heterogeneous in terms of skilled/unskilled-labor intensity.…”

Production Cost Asymmetry, Minimum Access and Reciprocal Dumping

“…Following Neary (2003) and Neary and Tharakan (2012), we assume that each sub-utility function is quadratic:…”

The 'Average' Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium

“…Hence, my findings and the mechanisms behind them lead to new insights. Given the increasing importance of the GOLE framework in theoretical literature, the research question on the role of firm heterogeneity, which is a key 8 See, for example, Neary (2003a;b) and Neary (2009a) for Ricardian trade models; Eckel and Neary (2010), Eckel et al (2011) and Egger and Koch (2012) for multi-product firms; Bastos and Straume (2012) and Neary and Tharakan (2012) for wage inequality and skill-premium; Neary (2007) for cross-border mergers; Basile and De Benedictis (2008), Kreickemeier (2009), Egger andEtzel (2012), Egger and Koch (2012), Egger and Meland (2011), and Kreickemeier and Meland (2011) for unions and unemployment. feature for most of sectors in many countries, is worth being analyzed. I aim to mitigate this theoretical void.…”