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On the fragility of gains from trade under continuously differentiated bertrand competition

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  • Mario Marazzi
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    Abstract

    One of the most widely accepted principles of economics is the existence of gains from trade for every nation under certain conditions including perfect competition. In the last twenty years, trade economists have revolutionized the field by firmly establishing the possibility of modeling imperfectly competitive international markets. Despite this development, most still agree there are good reasons to believe that gains from trade are still present. However, we show that in the absence of international redistributions the presence of a positive profit sector in a general equilibrium model can lead to a situation in which some nations may lose from the reduction of international trade barriers.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 735.

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    Date of creation: 2002
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    Handle: RePEc:fip:fedgif:735

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    Related research

    Keywords: International trade;

    References

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    1. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    2. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September.
    4. Newbery, David M G & Stiglitz, Joseph E, 1984. "Pareto Inferior Trade," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 1-12, January.
    5. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
    6. Richard G. Harris, 1989. "The New Protectionism Revisited," Canadian Journal of Economics, Canadian Economics Association, vol. 22(4), pages 751-78, November.
    7. Ohsawa, Yoshiaki, 1999. "Cross-border shopping and commodity tax competition among governments," Regional Science and Urban Economics, Elsevier, vol. 29(1), pages 33-51, January.
    8. Benson, Bruce L. & Hartigan, James C., 1983. "Tariffs which lower price in the restricting country : An analysis of spatial markets," Journal of International Economics, Elsevier, vol. 15(1-2), pages 117-133, August.
    9. Shachmurove, Yochanan & Spiegel, Uriel, 1995. "On Nations' Size and Transportation Costs," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 235-43, June.
    10. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-73, October.
    11. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
    12. Braid, Ralph M, 1987. "The Spatial Incidence of Local Retail Taxation," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 881-91, November.
    13. Collie, David R, 1997. "Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 504-20, October.
    14. Cheng, Leonard K, 1988. "Assisting Domestic Industries under International Oligopoly: The Relevance of the Nature of Competition to Optimal Policies," American Economic Review, American Economic Association, vol. 78(4), pages 746-58, September.
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    Cited by:
    1. Emma Aisbett, 2005. "Why are the Critics so Convinced that Globalization is Bad for the Poor?," NBER Working Papers 11066, National Bureau of Economic Research, Inc.

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