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Cournot-Nash Competition in a General Equilibrium Model of International Trade

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We use the two-factor, two-sector, two-country model of Melvin and Warne (1973) and Markusen (1981), in which the production of one good is monopolized in each country, in order to investigate the role of the price normalization. We illustrate several puzzling effects that occur if the price normalization is changed. However, we show that Markusen´s result on the direction of the trade flow between two proportional countries with constant returns to scale is robust with respect to the choice of the normal- ization rule. To overcome the price normalization problem in international trade we suggest to use the concept of real wealth maximization.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0308.

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Date of creation: May 2003
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Handle: RePEc:vie:viennp:0308

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Web page: http://www.univie.ac.at/vwl

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  1. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
  2. Dierker, Egbert & Grodal, Birgit, 1998. " Modelling Policy Issues in a World of Imperfect Competition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 153-79, March.
  3. R. Melvin, James & Warne, Robert D., 1973. "Monopoly and the theory of international trade," Journal of International Economics, Elsevier, vol. 3(2), pages 117-134, May.
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Cited by:
  1. Onur A. Koska & Frank Stähler, 2011. "Trade and Imperfect Competition in General Equilibrium," CESifo Working Paper Series 3543, CESifo Group Munich.
  2. Lutz Arnold, 2013. "Existence of equilibrium in the Helpman–Krugman model of international trade with imperfect competition," Economic Theory, Springer, vol. 52(1), pages 237-270, January.

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