Marginal Entrants and Trade-Liberalization Effects Across Models of Imperfect Competition

Martin Alfaro and David Lander ()
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David Lander: Peking University

No 2020-11, Working Papers from University of Alberta, Department of Economics

Abstract: When should we expect a trade shock to create pro competitive effects? In this paper, we investigate this in setups with firm heterogeneity and a linear demand with horizontal product differentiation. Our main finding is that the characterization of marginal entrants completely determines whether pro-competitive effects arise across standard settings of monopolistic competition (i.e., a la Krugman, Melitz, and Chaney/short-run Melitz) and Cournot (with free and restricted entry). This result holds independently of the assumptions on the rest of the firms, and is particularly stark in Cournot, where marginal entrants comprise merely one firm (the last entrant). We also provide conditions on marginal entrants across market structures that lead to pro-competitive, anti competitive, or null effects following a unilateral trade liberalization.

Keywords: marginal entrants; imperfect competition; import competition; export opportunities (search for similar items in EconPapers)
JEL-codes: D43 F10 F12 L13 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2020-07-19
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-int and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2020_011

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