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Trade Policy with Increasing Returns and Imperfect Competition: Contradictory Results from Competing Assumptions

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Author Info
Markusen, James R.
Venables, Anthony J.

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Abstract

A number of recent papers reach different conclusions concerning the effects of trade and industrial policy on imperfectly competitive industries; the implications for policy are therefore sensitive to assumptions concerning both firm behaviour and market structure. This paper sets out a single model within which policy can be examined under a variety of assumptions concerning market structures. The results obtained from this model can be compared to results already obtained in the literature, and the model allows further analysis of some interesting cases. We consider the four types of market structure generated by oligopoly versus free entry, and segmented markets versus integrated markets. By employing simple functional forms we are able to make direct comparisons between these cases. We conclude that the effects of trade and industrial policies are greater when markets are segmented than when they are integrated, and that, if transport costs are small, policy is more potent when the number of firms is fixed than when there is free entry.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 120.

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Date of creation: Jul 1986
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Handle: RePEc:cpr:ceprdp:120

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Related research
Keywords: Industrial Policy; Obligopoly Free Entry; Segmented Versus Integrated Markets; Trade Policy;

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  1. Fletcher, Stanley M. & Nadolnyak, Denis A., 2005. "Accommodating Imperfect Competition in A Model of World Peanut Trade," 2005 Annual meeting, July 24-27, Providence, RI 19460, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Jozef Konings & Hylke Vandenbussche, 2004. "Antidumping Protection and Markups of Domestic Firms: Evidence from Firm Level Data," LICOS Discussion Papers 14104, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
  3. Thorsten Bayindir-Upmann & Frank Staehler, 2003. "Market Entry Regulation and International Competition," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Head, Charles Keith & Mayer, Thierry & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," CEPR Discussion Papers 3454, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. BEHRENS, Kristian, 2004. "Market size and urban hierarchy," CORE Discussion Papers 2004029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  6. Santiago J. Rubio & María Dolores Alepuz, 2005. "Foreign Monopolies And Tariff Agreements Under Integrated Markets," Working Papers. Serie AD 2005-38, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  7. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano, 1999. "- Strategic Policy And International Economic Integration," Working Papers. Serie AD 1999-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  8. Patrick Paul Walsh, 1991. "A General Framework for Analysing Endogenous Trade Divergences," STICERD - Economics of Industry Papers 04, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  9. Yasuhito Tanaka, 1992. "On The Effects Of Commodity Tax Under Free Entry Oligopoly In The Presence Of Export Market," International Economic Journal, Korean International Economic Association, vol. 6(3), pages 83-92, October. [Downloadable!] (restricted)
  10. Konings, Jozef & Vandenbussche, Hylke, 2002. "Does Antidumping Protection Raise Market Power? Evidence from Firm Level Data," CEPR Discussion Papers 3571, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Lejour, A., 1995. "Cooperative and Competitive Policies in the EU : The European Siamese Twin ?," Discussion Paper 20, Tilburg University, Center for Economic Research. [Downloadable!]
  12. J. David Richardson, 1993. ""New" Trade Theory and Policy a Decade Old: Assessment in a Pacific Context," NBER Working Papers 4042, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Yasuhito Tanaka, 1991. "Negotiated tariffs in free entry oligopoly under integrated markets," Open Economies Review, Springer, vol. 2(2), pages 165-181, June. [Downloadable!] (restricted)
  14. Jean Mercenier, 1994. "Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition," Staff Report 183, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  15. Linda Hunter & James R. Markusen & Thomas F. Rutherford, 1991. "Trade Liberalization in a Multinational-Dominated Industry: A Theoretical and Applied General-Equilibrium Analysis," NBER Working Papers 3679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Takatoshi Tabuchi & Kristian Behrens & Andrea R. Lamorgese, 2004. "Testing the Home Market Effects in a Multi-country World: The Theory," Econometric Society 2004 Far Eastern Meetings 595, Econometric Society. [Downloadable!]
    Other versions:
  17. Sajal Lahiri & Yoshiyasu Ono, 1997. "Asymmetric oligopoly, international trade, and welfare: a synthesis," Journal of Economics, Springer, vol. 65(3), pages 291-310, October. [Downloadable!] (restricted)
    Other versions:
  18. Candau, Fabien, 2006. "The Spatial and Public Economics of Regions, a Theoretical and Empirical Survey," MPRA Paper 1153, University Library of Munich, Germany. [Downloadable!]
  19. Baldwin, Richard, 2000. "Regulatory Protectionism, Developing Nations and a Two-Tier World Trade System," CEPR Discussion Papers 2574, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  20. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  21. Antonio Cabrales & Massimo Motta, 1996. "Country Asymmetries, Endogenous Product Choice and the Speed of Trade Liberalization," Economics Working Papers 259, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1998. [Downloadable!]
    Other versions:
  22. J. David Richardson, 1990. "Empirical Research on Trade Liberalization With Imperfect Competition: A Survey," NBER Working Papers 2883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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