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Two and a Half Theories of Trade†

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  • J. Peter Neary

Abstract

This paper discusses the place of oligopoly in international trade theory, and argues that it is unsatisfactory to ignore firms altogether, as in perfectly competitive models, or to view large firms as more productive clones of small ones, as in monopolistically competitive models. Doing either fails to account for the granularity in the size distribution of firms and for the dominance of large firms in exporting. The paper outlines three ways of developing more convincing models of oligopoly, which allow for free entry but do not lose sight of the grains in granularity: heterogeneous industries, natural oligopoly, and superstar firms.

Suggested Citation

  • J. Peter Neary, 2010. "Two and a Half Theories of Trade†," The World Economy, Wiley Blackwell, vol. 33(1), pages 1-19, January.
  • Handle: RePEc:bla:worlde:v:33:y:2010:i:1:p:1-19
    DOI: 10.1111/j.1467-9701.2009.01255.x
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    References listed on IDEAS

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