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Bottled Water - A Case of Pointless Trade?

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Author Info

  • Friberg, Richard

    () (Stockholm School of Economics)

  • Ganslandt, Mattias

    () (The Research Institute of Industrial Economics)

Abstract

Two-way trade in (almost) homogenous products has ambiguous welfare effects if entry is restricted. We examine Swedish imports of bottled water to investigate whether transport cost losses from trade outweigh the partial equilibrium gains from trade (stronger competition and more brands to choose from). Using monthly data for all brands sold in stores during 1998-2001 we estimate a structural model of demand. Assuming one-shot Bertrand competition by multibrand firms, we can use the estimated model to uncover marginal costs. We stimulate the effect on consumer and producer surplus of banning imports, finding the banning imports would decrease overall welfare. Expanded choice is the main benefit of trade and disregarding his the net welfare effect of imports in this market are approximately zero - the pro-competitive effect is of the same size as the cost savings associated with replacing foreign, higher cost, suppliers with domestic. Given our choice of market this suggests we should not be overly concerned with the welfare effects of two-way trade in consumer goods that are close to homogenous.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 599.

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Length: 31 pages
Date of creation: 24 Jun 2003
Date of revision:
Handle: RePEc:hhs:iuiwop:0599

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Related research

Keywords: Reciprocal dumping; Intra-Industry Trade; Nested Logit Models;

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Cited by:
  1. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164.

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