Abstract
In this paper, we investigate if an increasing competition in an oligopolistic market will enhance the real incomes and consumer surplus in the long run. For this purpose, we apply a two-sector overlapping generation model in which members of the young generation own the oligopolistic firms. We show that increasing competition in the oligopolistic market leads to ambiguous outcomes regarding the real income and consumer surplus in the long run. However, we show that the distribution of income will become fairer if the competition increases, but it is possible that the price for a fairer distribution is a lower income for all members of the economy.
Highlights
The aim of this paper is to investigate the long-run consequences of imperfect competition in a neoclassical two-sector model of economic growth
We modified the two-sector overlapping generations (OLG) model of Laitner (1982) and showed that his results may no longer hold if the members of the young generation, instead of the old generation, are the owners of the oligopolistic firms
A higher steadystate level of capital stock is realized, and this may lead to a higher level of real income and real consumption or consumer surplus
Summary
The aim of this paper is to investigate the long-run consequences of imperfect competition in a neoclassical two-sector model of economic growth. We want to know if the existence of an imperfectly competitive market leads to inefficiencies measured in terms of consumer surplus and real aggregate income in the long run. It presumed in the literature that imperfect competitive markets lead to inefficiency in terms of consumer surplus, and to a more unequal distribution of income. The aim of Laitner was to investigate the static and dynamic welfare losses created by the oligopolistic sector. He detected static and dynamic welfare losses caused by the oligopolistic market.
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