IMPERFECT COMPETITION WITH INTERMEDIATE GOODS: A SIMULATION ANALYSIS OF A TWO-SECTOR MODEL

A two-sector model of imperfect competition with intermediate goods is developed and analysed by numerical simulation. It is shown how an objective notion of demand can be derived and employed in three concepts of equilibrium that differ in the possibilities for price-discrimination and collusion. The results indicate that there may be excessive use of labour relative to produced input in production, that price discrimination reduces both welfare and profits and that collusion between firms is beneficial to both the firms and the consumer. In addition, collusion may result in produced inputs being sold at a price less than marginal cost.