Competition Policy in a Simple General Equilibrium Model

Louis Kaplow

No 28482, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The flow of resources across sectors to their best use, with concomitant entry and exit, is central to the functioning and welfare properties of a market economy. Nevertheless, most industrial organization research, including applications to competition policy, undertakes partial equilibrium analysis in a single sector, often with a fixed number of firms. This article examines competition policy in a simple, multi-sector, general equilibrium model with free entry and exit. Even partial equilibrium analysis yields some lessons, such as that accounting for free entry often makes strengthening competition policy more rather than less attractive. When admitting flows between sectors, familiar prescriptions readily reverse. But such results may be partially offset or overturned yet again when incorporating free entry and exit in nontargeted sectors. Finally, the analysis of efficiencies also changes qualitatively with free entry because even fixed costs are fully borne by consumers in equilibrium.

JEL-codes: D43 D51 D61 K21 L13 L40 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-com and nep-ind
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Published as Louis Kaplow, 2023. "Competition Policy in a Simple General Equilibrium Model," Journal of Political Economy Microeconomics, vol 1(1), pages 80-114.

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