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Asymmetric general oligopolistic equilibrium

Ansgar F. Quint and Jonas Rudsinske

No 405, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: We develop an asymmetric general oligopolistic equilibrium (AGOLE) model, which extends the range of possible applications in general oligopolistic equilibrium modelling. The AGOLE allows to incorporate endogenous and asymmetric marginal utilities of income across countries.As a first exemplary application, we analyze the effects of asymmetric labor market policies. When one country increases its labor supply per capita, it is optimal for its firms to supply a part of the additional production to the other country at reduced prices to artificially inflate domestic prices. This results in a spillover effect letting consumption increase abroad due to a change in the terms of trade. In AGOLE, oligopolistic competition can induce asymmetric price reactions that shift real income and demand between the two countries. We argue that incorporating this cross-country demand channel is crucial for analyzing asymmetric countries or policies in presence of firms with market power.

Keywords: general oligopolistic equilibrium; strategic trade; international trade and labor market interactions; factor income distribution (search for similar items in EconPapers)
JEL-codes: D33 D51 F12 F16 L13 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-com, nep-ind, nep-int and nep-upt
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