Gains from trade and efficiency under monopolistic competition: a variable elasticity case

Kristian Behrens () and Yasusada Murata

No 2006049, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We present a general equilibrium model of monopolistic competition with variable demand elasticities and investigate the impact of free trade on welfare and efficiency. First, contrary to the constant elasticity case, in which all gains from trade are due to increasing product diversity, our model features gains from pro-competitive effects. Second, we prove that the market outcome is not efficient because too many firms operate at an inefficiently small scale. Last, we illustrate that free trade raises efficiency by reducing the gap between the equilibrium utility and the optimal utility.

Keywords: international trade; monopolistic competition; variable elasticity; gains from trade; efficiency. (search for similar items in EconPapers)
JEL-codes: D43 D51 F12 (search for similar items in EconPapers)
Date: 2006-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2006049

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