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A Unified Explanation of Trade Liberalization Effects Across Models of Imperfect Competition

Author

Listed:
  • Martin Alfaro

    (University of Alberta, Department of Economics)

  • David Lander

    (Peking University)

Abstract

This paper reconciles for the first time the wide range of outcomes arising in studies of trade liberalizations. We define an imperfect-competition model encompassing the major variants of monopolistic competition (Krugman, Melitz, and Chaney) and Cournot (with free and restricted entry). This model reveals that seemingly disparate outcomes are not due to market structure, as usually conjectured, but differences in marginal entrants' features. Thus, once we reconcile these differences, the same outcomes emerge across all models. By identifying assumptions on marginal entrants that generate pro-competitive, anti-competitive, or null effects, we also explain why puzzling outcomes arise in some standard frameworks.

Suggested Citation

  • Martin Alfaro & David Lander, 2019. "A Unified Explanation of Trade Liberalization Effects Across Models of Imperfect Competition," Working Papers 2019-16, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2019_016
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    File URL: https://sites.ualberta.ca/~econwps/2019/wp2019-16.pdf
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    References listed on IDEAS

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    1. M. Rusydi & Sardar M. N. Islam, 2007. "Market Models and Applications," Palgrave Macmillan Books, in: Quantitative Exchange Rate Economics in Developing Countries, chapter 4, pages 45-62, Palgrave Macmillan.
    2. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
    3. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    4. Efe A. Ok, 2007. "Preliminaries of Real Analysis, from Real Analysis with Economic Applications," Introductory Chapters, in: Real Analysis with Economic Applications, Princeton University Press.
    5. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    6. Venables, Anthony J., 1985. "Trade and trade policy with imperfect competition: The case of identical products and free entry," Journal of International Economics, Elsevier, vol. 19(1-2), pages 1-19, August.
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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F10 - International Economics - - Trade - - - General
    • 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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