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Modes of Imperfect Competition in Structural Gravity Models

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  • Anton Hartl

    (Austrian Federal Competition Authority (BWB))

Abstract

This paper examines implications of modes of imperfect competition in structural gravity models. To this end, I employ a parsimonious quantitative general equilibrium model of world trade where, contrary to CES demand models with perfect or monopolistic competition, firm-specific markups vary across destinations. Firms act strategically by choosing optimal quantities or prices depending on their market power. I review the recent literature on the competition-induced endogeneity of gravity estimates and use the model to check the success of bias corrections suggested by Breinlich et al. (2024) and Heid and Stähler (Econ Model 131:106604 2024) in Monte Carlo simulations. Further, I examine welfare effects of trade (de)liberalization under oligopoly. I find that when firms behave oligopolistic, trade liberalization leads to higher welfare gains.

Suggested Citation

  • Anton Hartl, 2025. "Modes of Imperfect Competition in Structural Gravity Models," Journal of Industry, Competition and Trade, Springer, vol. 25(1), pages 1-22, December.
    • Handle: RePEc:kap:jincot:v:25:y:2025:i:1:d:10.1007_s10842-025-00453-w
    DOI: 10.1007/s10842-025-00453-w
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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