The main purpose of this study is to illustrate, with a simple monopolistic competition trade model, how trade liberalization (i.e., a decline in trade costs) can affect domestic entrepreneurs' decisions between domestic brands and foreign brands, and thus the degree of foreign brand penetration. It is shown that, as trade costs decrease, more entrepreneurs choose to provide foreign brands. However, the impact of trade liberalization (in terms of changes in profit levels) becomes smaller as more entrepreneurs switch to foreign brands.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
16141.
Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
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