OVERHEAD COSTS AND BARRIERS TO ENTRY IN GENERAL EQUILIBRIUM ANALYSIS

Abstract

In dealing with the existence of gains from trade due to overhead costs, Negishi (1969) and (1972) extended Bain-Sylos Labini theory of oligopolistic markets to a general equilibrium framework. In our opinion, Negishi's analysis exhibits several drawbacks which should be clearly spelled out and removed if one wants to have a satisfactory study of barriers to entry in a general equilibrium framework.
The aim of this paper is to make clear what, in our view, the weak points in Negishi's analysis are, and to formulate a more satisfactory general equilibrium model in which, following Bain and Sylos Labini's analysis, overhead costs yield barriers to entry.