The Role of Free Entry in an Oligopolistic Heckscher-Ohlin Model

Sajal Lahiri and Yoshiyasu Ono

International Economic Review, 1995, vol. 36, issue 3, 609-24

Abstract: Retaining the basic properties of the Heckscher-Ohlin trade model, namely, free entry and exit, fully integrated international commodity markets, and the same number of sectors with that of factors, the authors develop a two-country model with Cournot oligopoly. In this economy, factor price equalization and the standard Heckscher-Ohlin theorem on comparative advantage hold. Between two countries which are identical except for size, however, autarkic prices are different even though the level of trade is zero under the free-trade regime. Nevertheless, free trade reduces the oligopoly price and increases welfare. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1995
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