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Equilibrium in the two-country Melitz model with variable markups, without Pareto

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  • Slepov, Fedor

Abstract

I establish the existence and uniqueness of equilibrium in an asymmetric two-country Melitz model with general additively separable preferences and arbitrary productivity distributions. I also propose an algorithm that reliably computes the equilibrium. These contributions facilitate the analysis of the pro-competitive effects of trade in more flexible environments. As an illustration, I use my algorithm to show that, away from Pareto, welfare gains inferred from a CES-based sufficient-statistic formula may be understated when the true data-generating model features variable markups.

Suggested Citation

  • Slepov, Fedor, 2026. "Equilibrium in the two-country Melitz model with variable markups, without Pareto," Economics Letters, Elsevier, vol. 263(C).
    • Handle: RePEc:eee:ecolet:v:263:y:2026:i:c:s0165176526001229
    DOI: 10.1016/j.econlet.2026.112928
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    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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