Creator

• Mercenier, Jean
• Schmitt, Nicolas

Series

• Staff report (Federal Reserve Bank of Minneapolis. Research Department)

Issue number

• 188

Date Created

• 1995-03

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.

Subject (JEL)

• F12 - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
• D58 - Computable and Other Applied General Equilibrium Models
• F17 - Trade: Forecasting and Simulation
• C68 - Computable General Equilibrium Models

Keyword

• Applied general equilibrium
• Market structure
• Trade liberalization
• Sunk costs

Related information

• Published in: International Economic Review (Vol. 37, No. 3, August 1996, pp. 553-571), https://doi.org/10.2307/2527441.

Date Modified

• 11/08/2019

Corporate Author

• Federal Reserve Bank of Minneapolis. Research Department

Publisher

• Federal Reserve Bank of Minneapolis

Resource type

• Research Paper

DOI

•  https://doi.org/10.21034/sr.188

License

• Creative Commons BY-NC Attribution-NonCommercial 4.0 International

Relationships

In Collection:

• Staff Reports

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