Working Paper Series, UCD Centre for Economic Research 02/22
I review previous approaches to modelling oligopoly in general equilibrium, and propose a new view which in principle overcomes their deficiencies: modelling firms as large in their own market but small in the economy as a whole. Implementing this approach requires a tractable specification of preferences. Dixit-Stiglitz preferences (which imply iso-elastic perceived demand functions) could be used, but continuum-quadratic preferences (which imply linear perceived demand functions) are more convenient. To illustrate their usefulness, I construct a simple closed-economy model of oligopoly in general equilibrium and derive some surprising implications for competition policy.