A Simple Model of Competition Policies, Trade, and the Skill Premium

Yoshinori Kurokawa

Tsukuba Economics Working Papers from Faculty of Humanities and Social Sciences, University of Tsukuba

Abstract: We develop a simple model of competition policies and trade, where fixed costs are shared within a cartel. The closed economy model shows that entry deregulation can increase the skill premium by increasing firm numbers and decreasing firm size, while an antitrust policy has the opposite effects. The numerical example with two asymmetric countries shows that entry deregulation and antitrust policy in one country, respectively, can increase and decrease the skill premia in both countries; however, the domestic skill premium is changed by a greater percentage than the foreign one. Available U.S. data show that our model seems empirically relevant.

Date: 2014-07, Revised 2020-04
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