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Indirect network effects and the impact of trade liberalization: A note

  • Kazumichi Iwasa
  • Toru Kikuchi

In this note, we examine how trade liberalization affects production structure in the presence of indirect network effects (hardware/software systems). For these purposes we construct a simple two-country model of trade with two incompatible hardware technologies. It is shown that, given that both types of hardware exist before trade liberalization, liberalization and increased intra-industry trade in software products may reduce the variety of hardware technology via intensified network effects. It is also shown that, contrary to the findings of previous studies on intra-industry trade, some consumers may become worse off as the result of trade.

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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 18 (2009)
Issue (Month): 4 ()
Pages: 541-552

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Handle: RePEc:taf:jitecd:v:18:y:2009:i:4:p:541-552
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  1. Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization 9701002, EconWPA.
  2. Christian Broda & David E. Weinstein, 2004. "Globalization and the gains from variety," Staff Reports 180, Federal Reserve Bank of New York.
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  11. Henkel, Joachim & Stahl, Konrad & Walz, Uwe, 2000. "Coalition Building in a Spatial Economy," Journal of Urban Economics, Elsevier, vol. 47(1), pages 136-163, January.
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