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Endogenous Market Structure, Trade Cost Reduction, and Welfare

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  • Sugata Marjit
  • Arijit Mukherjee

Abstract

We show the long-run effects of a trade cost reduction in an oligopolistic industry. If the labor markets are competitive and the products are homogeneous, a lower transportation cost affects neither consumer surplus nor welfare of the importing country under free entry of domestic firms. If the products are imperfect substitutes, a lower transportation cost may reduce consumer surplus and welfare of the importing country. We also show the implications of a domestic labor union, free entry of domestic and foreign firms, integer constraint, and a tariff as the trade cost.

Suggested Citation

  • Sugata Marjit & Arijit Mukherjee, 2015. "Endogenous Market Structure, Trade Cost Reduction, and Welfare," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 493-511, September.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201509)171:3_493:emstcr_2.0.tx_2-9
    DOI: 10.1628/093245613X14322754804672
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kazuhiro Takauchi & Tomomichi Mizuno, 2019. "Consumer-benefiting transport cost: The role of product innovation in a vertical structure," Discussion Papers 1911, Graduate School of Economics, Kobe University.
    2. Collie, David R., 2016. "Gains from variety? Product differentiation and the possibility of losses from trade under Cournot oligopoly with free entry," Economics Letters, Elsevier, vol. 146(C), pages 55-58.
    3. Takauchi, Kazuhiro, 2015. "Transport efficiency, downstream R&D, and spillovers," MPRA Paper 68479, University Library of Munich, Germany.
    4. Iraklis KOLLIAS & Sugata MARJIT & Nickolas J. MICHELACAKIS, 2019. "Public Investment, Taxation And Transfer Of Technology," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 90(3), pages 441-456, September.
    5. Laszlo Goerke, 2021. "Tax Evasion by Firms," IAAEU Discussion Papers 202104, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    6. Goerke, Laszlo, 2020. "A political economy perspective on horizontal FDI in a dynamic Cournot-oligopoly with endogenous entry," European Journal of Political Economy, Elsevier, vol. 63(C).
    7. Takauchi, Kazuhiro & Mizuno, Tomomichi, 2019. "Solving a hold-up problem may harm all firms: Downstream R&D and transport-price contracts," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 29-49.

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    More about this item

    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
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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