The Price Normalisation Problem in General Equilibriun Models with Oligopoly Power: An Attempt at Perspective
Dirk Willenbockel ()
GE, Growth, Math methods from EconWPA
In general equilibrium models with oligopolistic firms, equilibrium outcomes may depend on the choice of numeraire. When firms have the power to influence prices strategically, different price normalisations entail objective profit functions which are generally not monotone transformations of each other. Hence, under the assumption of profit maximization an arbitrary change in the price normalisation rule amounts effectively to a change in the objective pursued by firms. Applied general equilibrium analysts using models with imperfect competition have largely ignored the price normalisation problem. In several recent contributions to the literature, applied modellers are explicitly criticized for their neglect to address the numeraire issue. The purpose of this paper is to assess the validity and practical relevance of these criticisms for applied policy analysis.
Keywords: applied general equilibrium analysis; imperfect competition; price normalization problem; oligopoly; numeraire; CGE analysis (search for similar items in EconPapers)
JEL-codes: D58 D43 L21 (search for similar items in EconPapers)
Note: Type of Document - pdf; pages: 15. Middlesex University Discussion Paper: Economics No.109 (rev)May 2005
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpge:0505002
Access Statistics for this paper
More papers in GE, Growth, Math methods from EconWPA
Bibliographic data for series maintained by EconWPA ().