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Creator: Mercenier, Jean and Schmitt, Nicolas Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 188 Abstract:
We argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs. We introduce sunk costs into one such model calibrated with real-world data. We show how this changes the oligopoly game in a way significant enough to affect, both qualitatively and quantitatively, the outcome of a trade liberalization exercise.
Palabra clave: Sunk costs, Trade liberalization, Market structure, and Applied general equilibrium Tema: C68 - Computable General Equilibrium Models, F12 - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation, F17 - Trade: Forecasting and Simulation, and D58 - Computable and Other Applied General Equilibrium Models