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Factor Market Oligopsony and the Production Possibility Frontier

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  • Stephen Devadoss
  • Wongun Song

Abstract

The authors consider a model with two final goods, one intermediate good, and two primary factors. One final good and the intermediate good are produced using primary factors, labor and capital. The other final good is produced using labor and the intermediate input. Producers of the second final good exert oligopsonistic market power on the intermediate input, which captures real world phenomena prevalent in the food processing and other manufacturing industries. If the capital/labor ratio in one final‐good sector is in between those of the intermediate‐input sector and the combined intermediate‐input and the other final‐product sectors, and if the oligopsony power is sufficiently large, the model generates results that are not adherent to the standard two‐sector Heckscher–Ohlin model. Results that deviate from the H–O model include the relationships between factor prices and commodity prices, the price–output effect, tangency between the price line and the PPF, and the curvature of the PPF.

Suggested Citation

  • Stephen Devadoss & Wongun Song, 2003. "Factor Market Oligopsony and the Production Possibility Frontier," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 729-744, September.
    • Handle: RePEc:bla:reviec:v:11:y:2003:i:4:p:729-744
    DOI: 10.1111/1467-9396.00414
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    References listed on IDEAS

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    1. Raveendra N. Batra, 1973. "Studies in the Pure Theory of International Trade," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-01423-1.
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    Cited by:

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    2. Naoto Jinji, 2012. "Factor market monopsony and international duopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 271-286, February.

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