A Simple Model of Competition Policies, Trade, and the Skill Premium

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Abstract

<p>We develop a simple model of competition policies and trade, where fixed costs are shared within a cartel. The closed economy model shows that entry deregulation can increase the skill premium by increasing firm numbers and decreasing firm size, while an antitrust policy has the opposite effects. The numerical example with two asymmetric countries shows that entry deregulation and antitrust policy in one country, respectively, can increase and decrease the skill premia in both countries; however, the domestic skill premium is changed by a greater percentage than the foreign one. Available U.S. data show that our model seems empirically relevant.</p><p>JEL Classifications: F12, F16, J31, L13, L41, L51</p>

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