Imperfect competition in computable general equilibrium models - a primer

Economists normally view the field of imperfect competition in general equilibrium as an open Pandora's box of theoretical and practical problems. For example, how should the oligopoly markup be calculated in models where producers sell some faction of their output to multiple purchasers, which often is the case in applied models based on an input/output structure? How do we calculate the general equilibrium elasticities of demand? Is the choice of numeraire important for the results? Many economists introduce imperfect competition in their applied models with a simple markup based on a Marshallian approximation of demand ignoring these problems. This may result in mis-specified models and possible wrong results. We seek to provide practical solutions to the three problems. (C) 2002 Elsevier Science B.V. All rights reserved.