Introduction
Model
Results
Core-Periphery model: does perfect competition
matters?
Sergey Kichko, and
Evgeny Zhelobodko
National Research University Higher School of Economics
St. P., July 2013
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Main questions of classical model
There are dispersion and aglomeration forces. Which of them is
dominate?
Depending on which parameters it happens?
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Tomahawk
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Research agenda
dispersion equilibrium is
immobile demand (immobile workers of the second
Classical model: under big enough trade cost
stable due to
sector).
What is the role of the
perfect competiton (think about Starett
theorem)?
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
The model
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Assumptions
We study classical Core-Periphery model.
both sectors produce under IRS and
monopolistic competition.
The only dierence:
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Long-run equilibria
real wages to choose her
Mobile worker take in account countries'
location.
Real wage is a
nominal wage divided by price's indices of both
sectors:
λ˙ = λ (1 − λ )
w1H
w1F
−
1−µ
µ
1−µ
µ
P1H
P2H
P1F
P2F
!
,
where:
λ
j
is an endogeneous share of moblie workers;
w1
Pij
is a wage in sector 1 in country
is a price index in sector
Sergey Kichko, and
Evgeny Zhelobodko
i
j;
in country
j
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Long-run equilibria
We show that:
Second sector price indices are equal (P1F = P2F ) and do not
depend on wages in both sectors as well as trade cost.
The equilibrium
relative real wage w = w1H /w1F
is the
same as in
Krugman model.
Price indices in rst sector are the same as in Krugman model
due to separating markets in the sence that:
two sectoral sub-problems can be considered.
wages, and therefore total expenditure are independent of elasticity
of second sector good σ2 .
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Main Result
We show that:
Nominal wages and price indices of rst sector are the same as in
Krugman model,
(ii) Price indices of second sector are equal and do not depend on
endogoeneous mobile worker share in each country.
It implies following Proposition:
Proposition
pattern of long-run
equilibria, is independent of whether the second sector is governed by
perfect or monopolistic competition.
The bifurcation diagram, and therefore the
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Trade ows
The only dierence in result is trade ows.
In
classical model - only one country exports second sector
(homogeneous) good.
In
this model - both countries export second sector (dierentiated)
good because of love for variety.
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Trade ows
By a trade ow
country
j:
T ij
we mean gross imports value from country
T FH =
1−µ
2
i
to
L2
· λ Lw1H +
,
2
L2
1−µ
T HF =
· (1 − λ )Lw1F +
.
2
2
This implies that:
Trade ows are
independent of any characteristics of the second
sector (including
The
σ2 )
classical model is obtained from ours as a limiting case when
σ2 → ∞.
This result holds under
assymetric quantities of second sector
workers.
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Free entry
The equilibrium price and elasticity of substitution under Cournot and
Bertrand oligopoly are given by
p=
cε
ε −1
1
;
εCournot
=
1
σ2
+
1
N
1
σ2 − 1
· 1−
; εBertrand = σ2 −
,
σ2
N
Free entry provides the same number of rms N
in the economy
prices for the second-sector-produced goods in both
equal
Consequently,
countries are
The
same holds for second sector goods' price indices
Oligopoly with free entry results in the same pattern of long-run
equilibria
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Conclusion
the same
perfect, monopolistic or oligopolistic competition.
We have found out that the set of long-run equilibria has
structure under
There are
two key-factor of this result:
Cobb-Douglas-over-CES
to markets' separation.
specication of preferences, which leads
Free entry.
This result is very unlikely to hold under alternative
specications and/or oligopoly settings without free entry.
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?
Introduction
Model
Results
Thank you for your attention!
Sergey Kichko, and
Evgeny Zhelobodko
Core-Periphery model: does perfect competition matters?