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Endogenous Market Structures and International Trade: Theory and Evidence

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  • Federico Etro

Abstract

Under constant elasticity of substitution (CES) preferences and Cournot (or Bertrand) competition, a larger market induces exits of domestic firms, lower prices, and larger production of surviving firms because of competition from more foreign firms, even without resorting to the selection effects of Melitz. The elasticity of the number of firms to population decreases with substitutability between goods, and it reaches 0.5 under Cournot competition with homogeneous goods: empirical evidence supports this structural relation against the unitary elasticity of monopolistic competition. The results hold also in a 2 × 2 × 2 Heckscher–Ohlin model with imperfect competition generating inter- and intra-industry trade due to comparative advantage or comparative preferences.

Suggested Citation

  • Federico Etro, 2015. "Endogenous Market Structures and International Trade: Theory and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 918-956, July.
    • Handle: RePEc:bla:scandj:v:117:y:2015:i:3:p:918-956
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    File URL: http://hdl.handle.net/10.1111/sjoe.12084
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    Cited by:

    1. Etro, Federico, 2017. "The Heckscher–Ohlin model with monopolistic competition and general preferences," Economics Letters, Elsevier, vol. 158(C), pages 26-29.
    2. Tchoffo, Rodrigue & Ngouhouo, Ibrahim & Nkemgha, Guivis, 2020. "Trade Liberalization and Macroeconomic Performance in Cameroon: An Imperfect Competition Approach," MPRA Paper 98558, University Library of Munich, Germany, revised 09 Feb 2020.
    3. Paolo Bertoletti & Federico Etro & Ina Simonovska, 2018. "International Trade with Indirect Additivity," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 1-57, May.
    4. Hiroaki Ino & Akira Miyaoka, 2016. "Government-induced Production Commitment in the Open Economy," Discussion Paper Series 142, School of Economics, Kwansei Gakuin University, revised May 2016.
    5. Alexandru Manole & Ana Carp & Zoica Nicola & Marius Popovici, 2017. "Romania’s International Trade evolution analysis," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 65(3), pages 130-139, March.

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