Published in:Middlesex University Business School Discussion Paper Series: Economics
Extent:
1 Online-Ressource (15 p)
Language:
English
DOI:
10.2139/ssrn.552764
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 2005 erstellt
Description:
In general equilibrium models with oligopolistic firms, equilibrium outcomes may critically depend on the choice of numeraire. When firms have the power to influence prices strategically, different price normalisations entail objective profit functions which are generally not monotone transformations of each other. Hence, under the assumption of profit maximization an arbitrary change in the price normalisation rule amounts effectively to a change in the objective pursued by firms. Applied general equilibrium analysts using models with imperfect competition have largely ignored the price normalisation problem. In several recent contributions to the literature, applied modellers are explicitly criticized for their neglect to address the numeraire issue. The purpose of this paper is to assess the validity and practical relevance of these criticisms for applied policy analysis