Competition Policy in a Simple General Equilibrium Model by Louis Kaplow published by Journal of Political Economy Microeconomics (2/2023).
Most industrial organization research, including applications to compe-tition policy, undertakes partial equilibrium analysis in a single sector, of-ten with a fixed number of firms. For welfare analysis, this approach isvalid only if the rest of the economy is perfectly competitive, an assump-tion far from reality. This article examines competition policy in a sim-ple, multisector, general equilibrium model with free entry and exit, al-lowing for differing distortions in each sector. Flows between sectorsreadily reverse standard prescriptions. But such results may be partiallyoffset or overturned yet again when incorporating free entry and exit.Analysis of efficiencies also changes qualitatively.
