Economy-wide analysis of regulatory and competition policy a prototype general equilibrium model*

Abstract

This document describes the structure and behaviour of a numerical comparative static model of an almost small open economy with five primary factors and any number of product markets. Unlike most such models, all firms in all sectors are oligopolistic in behaviour, with the degree of product market power depending on the size of recurrent fixed costs per plant, the elasticity of demand faced by each and the level of strategic interactions between firms, as captured by calibrated conjectural variations parameters. Demand facing each firm comprises final consumption, intermediate use and exports, each of which is differently elastic. Physical capital earns a constant, international, rate of return and the length of run is set so that the home capital stock is flexible. Shocks that raise the home capital stock, however, also raise foreign ownership. The policy instruments currently represented are tariffs, export taxes and export subsidies.