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Market Integration, Choice of Technology and Welfare

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Author Info

  • J¿rgen Drud Hansen

    (Department of Economics, Aarhus School of Business)

  • J¿rgen Ulff-M¿ller Nielsen

    ()
    (Department of Economics, Aarhus School of Business)

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    Abstract

    This paper develops an international trade model where firms in a duopoly may diversify their technologies for strategic reasons. The firms face the same set of technologies given by a trade-off between marginal costs and fixed costs, but depending on trade costs the firms may choose different technologies. Market integration may induce a technological restructuring where the firms either diversify their technologies or switch to a homogenous technology leaving jumps in welfare both in the home and foreign country. It is shown that with respect to global welfare Cournot Nash equilibria with homogeneous firms are in some cases inferior to Cournot Nash equilibria with heterogeneous firms. A small decrease in trade costs, which induces a switch from heterogeneous technologies to a homogeneous technology, reduces global welfare. Extensive reductions in trade costs allow for the traditional positive global welfare effects of market integration.

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    File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_0711.pdf
    File Function: First version, 2007
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    Bibliographic Info

    Paper provided by University of Otago, Department of Economics in its series Working Papers with number 0711.

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    Length: 28 pages
    Date of creation: Apr 2007
    Date of revision: Apr 2007
    Handle: RePEc:otg:wpaper:0711

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    Related research

    Keywords: Firm heterogeneity; duopoly; technology choice; market integration; welfare;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Wiley Blackwell, vol. 21(8), pages 1061-1076, November.
    2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
    3. repec:bla:restud:v:77:y:2010:i:1:p:188-217 is not listed on IDEAS
    4. Andrew B. Bernard & J. Bradford Jensen, 2001. "Why Some Firms Export," NBER Working Papers 8349, National Bureau of Economic Research, Inc.
    5. David R. Collie, 2006. "Tariffs And Subsidies Under Asymmetric Oligopoly: Ad Valorem Versus Specific Instruments," Manchester School, University of Manchester, vol. 74(3), pages 314-333, 06.
    6. Peter Neary & Carsten Eckel, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Economics Series Working Papers 292, University of Oxford, Department of Economics.
    7. Sajal Lahiri and Yoshiyasu Ono, . "Asymmetric Oligopoly, International Trade, and Welfare: Synthesis," Economics Discussion Papers 435, University of Essex, Department of Economics.
    8. Catia Montagna, 1998. "Efficiency Gaps, Love of Variety and International Trade," Dundee Discussion Papers in Economics 090, Economic Studies, University of Dundee.
    9. Schmitt, Nicolas & Yu, Zhihao, 2001. "Economies of scale and the volume of intra-industry trade," Economics Letters, Elsevier, vol. 74(1), pages 127-132, December.
    10. Mills, David E. & Smith, William, 1996. "It pays to be different: Endogenous heterogeneity of firms in an oligopoly," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 317-329, May.
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