ABSTRACT
This chapter specifies the theoretical model used to analyze demand patterns and the interaction between trade policy and market concentration in the US auto industry. It explores the conceptual approaches used to model oligopolistic interactions at the industry level. A simplified model incorporating the effects of oligopoly behavior is identified and used as the basis for the model. Modern oligopoly theory has produced many different models of market structure and firm interaction. A principle challenge for any empirical study of industry conduct and performance is to identify that particular form of oligopoly interaction that best characterizes a given sector. Baker and Bresnahan developed an econometric model for measuring the market power of firms in differentiated product industries, without estimating all of the possible cross elasticities of demand between competing products. If the labor market in the auto industry is sufficiently concentrated on either the supply or the demand sides, then wages will not competitively determined.
