International trade with endogenous mode of competition in general equilibrium

This paper endogenises the extent of intra-sectoral competition in a multi-sectoral model of oligopoly and trade in general equilibrium. Firms choose capacity followed by prices. If the bene…ts of capacity investment in a given sector are below a threshold level, the sector exhibits Bertrand behaviour, otherwise it exhibits Cournot behaviour. By endogenising the threshold parameter in general equilibrium, we show how exogenous shocks alter the mix of sectors between “more”and “less”competitive, or Bertrand and Cournot. The model also has implications for the e¤ects of trade liberalisation and technological change on the relative wages of skilled and unskilled workers.