EconPapers    
Economics at your fingertips  
 

Large and small firms in a global market: David vs. Goliath

Mathieu Parenti () and ,

No 2013058, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper studies the impact of trade liberalization when monopolistically competitive and oligopolistic firms coexist in the same market. The model is characterized by a group of multi-product firms which behave strategically and take their impact on market aggregates into account (e.g. the average price, and total output) and by a monopolistically competitive fringe. This difference in behavior leads large firms to charge higher markups. Conditions are derived for the coexistence of both types of firms: heterogeneity in production efficiency, captured by economies of scope for large firms, appears as a necessary condition for them to coexist at equilibrium. Turning to international trade, free trade increases social welfare, as both large and small firms become more competitive. However, when only large firms are able to cover the fixed costs to export, bilateral trade liberalization fosters the exit of small firms, and increases product variety, but it also lowers consumer surplus through a higher average price. Social welfare increases under linear or isoelastic demand but is generally ambiguous.

Keywords: monopolistic competition; oligopolistic market structure; large firms; international trade (search for similar items in EconPapers)
JEL-codes: D4 L10 F11 (search for similar items in EconPapers)
Date: 2013-11-25
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://uclouvain.be/cps/ucl/doc/core/documents/coredp2013_58web.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2013058

Access Statistics for this paper

More papers in CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().

 
Page updated 2019-04-09
Handle: RePEc:cor:louvco:2013058