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Is "Getting The Prices Right" Always Right? How Trade Liberalization Can Fail

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  • Gaitan, Beatriz
  • Pavel, Ferdinand

Abstract

We present a general equilibrium model with oligopsonistic market structure in one of the sectors. Buyers of inputs can set the price of inputs by being involved in rent seeking activities. The framework developed is applied to the Bulgarian economy in particular to the agro-food chain. From the application to the Bulgarian economy we find that if there are market imperfections, such as oligopsonistic behavior in the economy, there are no significant welfare gains from free trade. Significant welfare gains from trade are observed only when a competitive structure prevails. We show that eliminating this market imperfection can bring important welfare implications and an efficient reallocation of resources.

Suggested Citation

  • Gaitan, Beatriz & Pavel, Ferdinand, 2000. "Is "Getting The Prices Right" Always Right? How Trade Liberalization Can Fail," Bulletins 12970, University of Minnesota, Economic Development Center.
    • Handle: RePEc:ags:umedbu:12970
    DOI: 10.22004/ag.econ.12970
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    More about this item

    Keywords

    International Relations/Trade;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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