Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/18892 
Year of Publication: 
2004
Series/Report no.: 
CESifo Working Paper No. 1254
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
A country with Cournot competition and free entry experiences an increase of its market size either due to economic growth or international integration of goods markets. The implied increase in competition leads to shrinking mark-ups and forces firms to reduce overhead costs relative to output. This implies a reallocation at the aggregate level from administrative to productive activities. Relative factor rewards change and wage inequality increases. The factor losing in relative terms can even lose in real terms. From a quantitative perspective, international competition is shown to be the more plausible cause of rising wage inequality.
Subjects: 
international trade
wage inequality
foreign competition
free entry and exit
JEL: 
F12
J31
Document Type: 
Working Paper
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