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

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  • Kazumichi Iwasa
  • Toru Kikuchi

Abstract

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.

Suggested Citation

  • Kazumichi Iwasa & Toru Kikuchi, 2009. "Indirect network effects and the impact of trade liberalization: A note," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(4), pages 541-552.
  • Handle: RePEc:taf:jitecd:v:18:y:2009:i:4:p:541-552
    DOI: 10.1080/09638190802464966
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    References listed on IDEAS

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    1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
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    More about this item

    Keywords

    indirect network effects; hardware/software systems; trade liberalization; intra-industry trade;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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