Abstract
This paper considers the technical aspects and the consequences, in terms of simulation results and policy assessment, of introducing imperfect competition in a CGE model. The modifications to the standard CGE framework needed to model imperfect competition in some industries are briefly discussed. Next, the paper examines whether, how much and why, those changes may affect the qualitative output a typical simulation experiment. It is argued that technical choices made in designing the model structure may have a significant impact on the model behavior. This is especially evident when the model output of an imperfect competition closure is compared with the one of a standard closure, assuming perfect competition. As an illustration, a simulation of agricultural trade liberalization is analyzed. Results from the same simulation exercise, but produced by alternative model formulations (one standard competitive and three imperfect competition variants) are presented and discussed. It is found that having imperfect competition in a CGE model does matter in terms of simulation results. Furthermore, alternative formulations of imperfect competition typically bring about quite different findings and implications.
Similar content being viewed by others
References
Abaysiri-Silva, K. (1999). Market Power in Australian Manufacturing Industry: A Confirmation of Hall's Hypothesis, CEPS - Impact Project General Paper n. G-132, Monash University, Melbourne, Australia.
Bchir, M.H., Decreux, Y., Guérin, J.-L. and Sébastien, J. (2002). MIRAGE, a Computable General Equilibrium Model for Trade Policy Analysis, CEPII working paper n. 2002-17.
Francois, J.F. (1998). Scale Economies and Imperfect Competition in the GTAP Model, GTAP Technical Paper No. 14, Center for Global Trade Analysis, Purdue University.
Fujita, M., Krugman, P. and Venables, A.J. (1999). The Spatial Economy – Cities, Regions, and International Trade, MIT Press.
Gørtz, M. and Hansen, J.V. (1999). Regulation of Danish Energy Markets with Imperfect Competition, Working Paper 19992, Danish Economic Council.
Harris, R. (1984). Applied general equilibrium analysis of small open economies with scale economies amd imperfect competition. American Economic Review, 74(5), 1016–1032.
Harrison, W.J. and Pearson, K.R. (1996). Computing solutions for large general equilibrium models using GEMPACK. Computational Economics, 9, 83–127.
Harrison, G., Rutherford, T. and Tarr, D. (1997). Quantifying the Uruguay round. Economic Journal, 107, 1405–1430.
Hertel, T.W. (1996). Global Trade Analysis: Modeling and Applications. Cambridge University Press.
Hoffman, A.N. (1999). Imperfect Competition in General Equilibrium Models - A Primer, Mimeo, MobiDK project, University of Copenhagen and Ministry of Business and Industry, Denmark.
Maioli, S. (2003). A Joint Estimation of Markups and Returns to Scale in 22 French Industries: a Structural Approach. Mimeo, GEP University of Nottingham, U.K.
Oliveira-Martins, J., Pilat, D. and Scarpetta, S. (1996). Mark-up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries, OECD Economics Department Working Papers No. 162.
Swaminathan, P. and Hertel, T.W. (1997). Introducing Monopolistic Competition into the GTAP Model. GTAP Technical Paper No. 6, Center for Global Trade Analysis, Purdue University.
Willenbockel, D. (2002). Sensitivity of CGE Trade Policy Analysis under Imperfect Competition to the Specification of Firm Conduct, Mimeo, Middlesex University London.
Author information
Authors and Affiliations
Corresponding author
Additional information
JEL Codes: D58, F12, L16
Rights and permissions
About this article
Cite this article
Roson, R. Introducing Imperfect Competition in CGE Models: Technical Aspects and Implications. Comput Econ 28, 29–49 (2006). https://doi.org/10.1007/s10614-006-9034-6
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10614-006-9034-6