Cournot-Nash Competition in a General Equilibrium Model of International Trade

Egbert Dierker, Hildegard Dierker () and Birgit Grodal
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Hildegard Dierker: https://econ.univie.ac.at

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: We use the two-factor, two-sector, two-country model of Melvin and Warne (1973) and Markusen (1981), in which the production of one good is monopolized in each country, in order to investigate the role of the price normalization. We illustrate several puzzling effects that occur if the price normalization is changed. However, we show that Markusen´s result on the direction of the trade flow between two proportional countries with constant returns to scale is robust with respect to the choice of the normal- ization rule. To overcome the price normalization problem in international trade we suggest to use the concept of real wealth maximization.

JEL-codes: D43 F11 F12 (search for similar items in EconPapers)
Date: 2003-05
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Working Paper: Cournot-Nash Competition in a General Equilibrium Model of International Trade (2003)
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