A Decomposition of the Home-Market Effect
Although the home-market effect has become one of the most important concepts in both trade theory and the new economic geography, it lacks a compelling graphical representation. The purpose of this note is to offer such a representation. We will decompose the homemarket effect into two steps: a short-run response to population shift, creating entry-stimulating excess profits (in the short run) for firms of the country that experiences a population gain, and a further round of entries into the monopolistic sector of the expanding country induced by exits in the foreign industry.
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- Dixit, Avinash K & Stiglitz, Joseph E, 1975.
"Monopolistic Competition and Optimum Product Diversity,"
The Warwick Economics Research Paper Series (TWERPS)
64, University of Warwick, Department of Economics.
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- repec:tpr:qjecon:v:117:y:2002:i:2:p:409-436 is not listed on IDEAS
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NBER Working Papers
7927, National Bureau of Economic Research, Inc.
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