Domestic entry, international trade cost reduction and welfare

Sugata Marjit and Arijit Mukherjee

Discussion Papers from University of Nottingham, GEP

Abstract: We show the welfare effects of international trade cost reduction under endogenous domestic market structure. If the domestic labour market is competitive, there is no integer constraint and the trade cost represents transportation cost, a reduction in the transportation cost does not affect (may reduce) domestic welfare if the products are perfect (imperfect) substitutes. If the trade cost represents tariff, domestic welfare is higher under a positive non-prohibitive tariff compared to both free trade and no trade. In the presence of an integer constraint, a lower transportation cost may reduce consumer surplus and increase the profits of the active domestic firms and domestic welfare, even if the products are homogeneous. If there is no integer (integer) constraint and the products are perfect substitutes, transportation cost reduction reduces (may increase) domestic welfare in the presence of a domestic labour union. We also show that entry for the domestic country may be socially excessive or insufficient under a competitive domestic labour market, while it is always socially insufficient in the presence of a domestic labour union.

Keywords: Free entry; Transportation cost; Tariff; Labour union; Welfare (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.nottingham.ac.uk/gep/documents/papers/2010/10-26.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:not:notgep:10/26

Access Statistics for this paper

More papers in Discussion Papers from University of Nottingham, GEP School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC.
Bibliographic data for series maintained by Hilary Hughes ().