TRADE AND THE GAINS FROM TRADE WITH IMPERFECT COMPETITION

James Markusen

Chapter 14 in Broadening Trade Theory:Incorporating Market Realities into Traditional Models, 2021, pp 303-323 from World Scientific Publishing Co. Pte. Ltd.

Abstract: A simple two-country model is constructed in order to show how imperfect competition can form a basis for trade. Under the assumption of Cournot–Nash behaviour, it is demonstrated that trade will lead to a bilateral welfare improvement when countries are identical in all respects. When countries differ in size, trade will always increase total world real income, but the large country may experience a welfare loss. Increasing returns to scale in the production of the monopolized good complicates the situation further, but it generally remains true that trade increases world real income.

Keywords: Multinational Firms; Horizontal Multinationals; Vertical Multinationals; Internalization; Vertical Integration; Outsourcing; Foreign Affiliates; Per-Capita Income; Non-homothetic Preferences; Income Elasticity of Demand; Missing Trade Puzzle; Skill Premium Puzzle; Pro-competitive Gains From Trade; Complements; Externalities (search for similar items in EconPapers)
JEL-codes: F00 F02 F13 F41 F43 (search for similar items in EconPapers)
Date: 2021
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Journal Article: Trade and the gains from trade with imperfect competition (1981)
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