Abstract. In this paper, I survey the recent and rapidly increasing theoretical literature using the brand-new approach in embedding oligopolistic competition in general equilibrium, as designed by J. Peter Neary. First, I introduce the reader to Neary's approach, by describing the main ingredients. Then, I present a comprehensive set of studies that, over the last decade, apply this approach in different contexts, most of which are in open economy, and I examine the relevant outcomes. Although the theoretical literature has generously advanced, there is a lack of research on the empirical side, which would be an important area for future research besides theoretical extensions, some of which I highlight in the conclusions.
In a two-country general oligopolistic equilibrium model, I study how crosssector strategic trade policy affects wages, countrywide profits, and welfare. Firms face resource constraints and wages are simultaneously determined. Relative to free trade, cross-sector protectionism generates a reduction in the foreign wage without affecting the domestic wage. Domestic countrywide profits benefit from small import tariffs, whereas the foreign counterpart is hit, but when sectors share the same technology. Domestic welfare is unambiguously penalized. Hence, the general-equilibrium cross-sector perspective goes against the textbook version theory of the optimal tariff in partial equilibrium. Rationalization of these effects suggests a politicaleconomy view on tariff formation in general equilibrium. JEL:D43 AbstractIn a two-country general oligopolistic equilibrium model, I study how cross-sector strategic trade policy affects wages, countrywide profits, and welfare. Firms face resource constraints and wages are simultaneously determined. Relative to free trade, cross-sector protectionism generates a reduction in the foreign wage without affecting the domestic wage. Domestic countrywide profits benefit from small import tariffs, whereas the foreign counterpart is hit, but when sectors share the same technology. Domestic welfare is unambiguously penalized. Hence, the general-equilibrium cross-sector perspective goes against the textbook version theory of the optimal tariff in partial equilibrium. Rationalization of these effects suggests a political-economy view on tariff formation in general equilibrium.
This paper builds a general oligopolistic equilibrium model to investigate how withinsector firm heterogeneities affect wage rate, country-wide profits, and welfare. Using linear inverse demands, I consider asymmetric sectors, each involving n Cournot oligopolists producing horizontally differentiated varieties with constant, though asymmetric, costs. I link a measure of the average within-sector firm heterogeneity with the economy-wide, endogenously determined, and competitive wage rate. For interior equilibriums, the higher the "average" the lower the wage rate. Once general equilibrium feedbacks from wage rate are considered, the "average" has an unclear impact on country-wide profits and welfare, depending on moments of the technology distribution as well as demand parameters. The findings have implications to better understand antitrust and related policies.
I build a two-country general oligopolistic equilibrium model, in which sectors differ in emissions and technologies, and pollution can be transboundary. I derive the optimal bilateral environmental policy for the economy as a whole, for the cases in which the environmental damage either linearly or quadratically increases in total pollution. The analysis highlights that the optimal emission tax can even be negative, and bilateral trade liberalization should be matched with either a rise or a fall in the optimal emission tax. The moments of the emission distribution and technology distribution across sectors are fundamental to implement optimal environmental policies.
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