Increasing returns,entrepreneurship and imperfect competition

We study a simple bilateral oligopoly model in which individual agents, who are initially endowed with capital, decide sequentially (1) whether they want to act as producers (entrepreneurs) or as capital lenders (rentiers) and, then (2) which quantity of capital they would like to borrow or lend, though exchange of capital units against units of the produced good. Production takes place under increasing returns to scale. We show the existence of “natural equilibria”, at which wealthier capital owners become entrepreneurs while the remaining ones decide to be rentiers. We also study the efficiency of equilibria which is shown to increase by replication of the economy, but sometimes to decrease as a consequence of wealth redistribution.We thank an anonymous referee for his insightful comments     

The indeterminacy of equilibrium city formation under monopolistic competition and increasing returns

We study the indeterminacy of equilibrium in the Fujita–Krugman [When is the economy monocentric?: von Thünen and Chamberlin unified, Reg. Sci. Urban Econ. 25 (1995) 505–528] model of city formation under monopolistic competition and increasing returns. Both the number and the locations of cities are endogenously determined. Assuming smooth transportation costs, we examine equilibria in city-economies where a finite number of cities form endogenously. For any positive integer K, the set of equilibria with K distinct cities has a smooth manifold of dimension K-1 as its interior for almost all parameter values in a regular parameterization. The disjoint union of these sets over all positive integers K constitutes the entire equilibrium set.     

Price normalization under imperfect competition

In general equilibrium models of imperfect competition the equilibria depend on how prices are normalized. This note shows that a price normalization preserves convexity properties if and only if prices are measured in terms of a fixed commodity bundle. I am grateful to an anonymous referee for helpful comments, inspiring a simplification in the proof of the main result, and the argument in the Remark.     

Electoral competition under imperfect information

Summary. This paper considers electoral competition between two office-motivated parties and one voter, in the presence of two alternative policies and under imperfect information. The theory of refinements of Nash equilibrium predicts the outcome of this three-player game: both parties faithfully use their information and try to find the best policy for the voter. We discuss the meaning of this model for Politics and prove that the same result holds for any number of voters, provided that parties are expected plurality maximizers and that voters satisfy a version of the sincere voting assumption adapted to this strategic setting.Received: 12 December 2001, Revised: 16 June 2003JEL Classification Numbers: C72, D72, D82.Correspondence to: Jean-François LaslierThanks to Gabrielle Demange, Françoise Forges, Roger Guesnerie, Jean-Fran çois Mertens, Thomas Palfrey, Sylvain Sorin and other participants in workshops and conferences in Caen, Paris, Caltech and Yale. Thanks also to two anonymous referees and to Paul Heidues and Johan Lagerlöf for their comments. This work was originated when K. Van der Straeten was at THEMA (Université de Cergy-Pontoise) and DELTA.     

Free trade, factor returns, and factor accumulation

A model of development is studied in which physical capital and unskilled labor are good substitutes, and skilled labor is complementary to the resulting aggregate. Growth in a closed economy is compared with two open regimes. Inflows of physical capital only reduce the interest rate and raise both wage rates. The skilled wage rises more sharply, however, increasing the skill premium and accelerating human capital accumulation. Full integration with a larger and more developed neighbor also reduces the interest rate and raises both wage rates, but in this case the skill premium falls and human capital accumulation changes very little.     

Substitution and output effects in the neoclassical theory of the firm under imperfect competition

Since 1938, it has been established that the effect produced by a variation in an input price on the use of another input can be decomposed into a substitution effect and an output effect (or scale effect). Nevertheless, this distinction is still denied today by many authors. Here, one tries to establish in which manner imperfect competition in the product market alters the respective importance of substitution and output effects. Some implications are then derived about alternative manners of defining substitutability and complementarity between inputs.     

Product differentiation, competition, and international trade

In this paper the two workhorse theories of international trade under imperfect competition – Krugman's taste for variety model and Brander's strategic intra-industry trade model – are integrated into a single analytical framework. A quadratic utility function allows for a nesting of these two theories by postulating a consumer taste for variety over differentiated products, where the extent of product differentiation is linked to the intensity of strategic interaction among firms. The model yields intuitive predictions on the effects of the degree of product differentiation on the volume of trade and on the composition of the gains from trade under imperfect competition. JEL classification: F12
Différenciation de produits, concurrence et commerce international. Ce mémoire intègre deux théories connues du commerce international en régime de concurrence imparfaite – le modèle du goût pour la variété de Krugman et celui du commerce intra-industrie de Brander – en un seul cadre analytique. Une fonction d'utilité quadratique permet d'encadrer ces deux théories en postulant que le consommateur a un goût pour la variété dans une gamme de produits différenciés où le degré de différenciation est reliéà l'intensité de l'interaction stratégique entre les entreprises. Le modèle engendre des prévisions quant aux effets du degré de différenciation des produits sur le volume de commerce international et la composition des gains résultant de ce commerce en régime de concurrence imparfaite.     

Indeterminacy of intertemporal equilibria under imperfect competition

Summary. It is known that overlapping generations models with imperfectly competitive firms may exhibit a continuum of stationary equilibria. The reason of this indeterminacy is that different price expectation functions of consumers lead to different objective demand functions against which firms maximize. All these expectation functions fulfill perfect foresight in the equilibrium, but they can be arbitrary off the equilibrium. In this paper it is shown that it is not this arbitrariness which is responsible for the indeterminacy, but that the continuum of stationary equilibria emerges even if expectation functions are rational. Received: March 25, 1999; revised version: February 16, 2000     

Technical change and employment under imperfect competition with perfect and imperfect information

We consider the implications of process innovation for the aggregate level of employment of assuming that not all firms adopt new technologies simultaneously and that non-innovators adopt (temporarily)disequilibrium strategies (due to imperfect information about the introduction of the new technology). Two alternative scenarios are explored. In one, consumers' demands arise from symmetric homothetic preferences, and in the other from asymmetric (Hotelling-type) preferences. We find that there may be a reduction in employment in the transition to the new equilibrium under both types of preferences even if there is no decrease (or an increase) in the new (long-run) equilibrium level of employment. The conditions under which this will occur are however different for the alternative preference structures. Further, the latter are shown to have different implications for theequilibrium effects of process innovation.     

从国际竞争优势理论视角看我国服务贸易发展战略

作为国际贸易的重要组成部分,服务贸易在一国经济活动中占据着越来越重要的位置.发展服务贸易是我国对外贸易转型升级的客观要求,对我国转变外贸增长方式、提升现代服务业发展水平、缓解就业压力、拉动服务消费增长、提升国家软实力、提高企业和国民素质、实现国民经济又好又快发展都具有重大而深远的意义.     

Specification choice and robustness in CGE trade policy analysis with imperfect competition

In order to contribute to a more comprehensive understanding of the robustness of the quantitative results of applied trade policy simulations to variations in the assumptions about firm conduct, this article provides a systematic synopsis of alternative formulations of imperfectly competitive supply behaviour in applied general equilibrium trade models and examines the sensitivity of simulated trade policy effects to the specification choice and calibration strategy within a prototype multi-country model. The analysis suggests in particular, that simulation results are generally far more sensitive to numerical specification choices at the calibration stage, than to the prior choice of firm conduct specification.     

Art works in international trade theory

Competitive International Trade Theory has frequently been criticized for its intensive use of diagrams (as opposed to more formal mathematics, such as calculus and algebra), prompted by its typical use of small dimensional models. This paper selects ten diagrams useful in capturing the essence of important trade theory and illustrating their usefulness even in higher-dimensional cases.     

Tax principles and tax harmonization under imperfect competition: A cautionary example

This paper shows that under imperfect competition, the welfare effects of indirect tax harmonization may depend crucially on whether taxes are levied by the destination or the origin principle. In a standard model of imperfect competition, while harmonization always makes at least one country better off, and may be Pareto-improving, when taxes are levied under the destination principle (which currently applies in the European Union), harmonization of origin-based taxes (as recently proposed by the European Commission) is certain to be Pareto-worsening when the preferences in the two countries are identical, and is likely to be so even when they differ.     

The investment effects of price caps under imperfect competition: A note

We examine the impact of price cap regulation on the capacity investments of oligopolistic suppliers facing time-varying demand. We find that binding price caps set above long-run marginal cost increase (rather than decrease) aggregate capacity investment.     

Competing for a duopoly: international trade and tax competition

Abstract We analyse the tax/subsidy competition between two potential host governments to attract the plants of firms in a duopolistic industry. While competition between identical countries for a monopolist's investment is known to result in subsidy inflation, two firms can be taxed in equilibrium with the host countries appropriating the entire social surplus generated within the industry, despite explicit non‐cooperation between governments. Trade costs mean that the firms prefer dispersed to co‐located production, creating these taxation opportunities for the host countries. We determine the country‐size asymmetry that changes the nature of the equilibrium, inducing concentration of production in the larger country.     

A model of firm heterogeneity in factor intensities and international trade

Empirical evidence suggests that exporters are, in addition to being more productive, significantly more skilled‐labour intensive than non‐exporters. In a setting that captures both these features, we show that the firm selection induced by trade liberalization works along two dimensions. First, export growth increases competition for skilled labour. This leads to the exit of some of the skilled‐labour intensive firms, while benefitting unskilled‐labour intensive ones. Second, within the group of firms with the same factor intensities, the reallocation of factors is towards the exporters. We show that the increased competition for skilled labour dampens the positive effect of trade liberalization on sector‐wide TFP and real income.     

On variable capital utilization and international trade theory

If variable capital utilization results from within-period technological productivity variations, no modification of standard trade theory is required. If it results from within-period factor price variations, the modifications required are those of many factors in variable supply, i.e., non-traded goods.     

Cournot equilibrium in large markets under increasing returns

We consider Cournot partial equilibria in large markets where firms have decreasing average costs. It is shown that the outcome of competition is approximatelyefficient if entry is free.