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Endogenous Market Structures and International Trade


  • Etro Federico

    (Department of Economics, University Of Venice C� Foscari)


I extend the endogenous market structures approach to international trade theory and policy. When markets are characterized by strategic interactions and endogenous entry, opening up to trade decreases the price level, and increases concentration and the production of each firm, with a positive competition effect on welfare. With endogenous entry of foreign firms in the domestic market it is optimal to set a positive import tariff decreasing in the ratio between entry costs and market size. With endogenous entry of international firms in an integrated market, the optimal subsidy to domestic production is always positive and independent from the relative size of the domestic market. Implications for multinationals engaged in FDIs, indirect trade promotion and the lobbying are also analyzed.

Suggested Citation

  • Etro Federico, 2010. "Endogenous Market Structures and International Trade," Working Papers 2010_26, Department of Economics, University of Venice "Ca' Foscari".
  • Handle: RePEc:ven:wpaper:2010_26

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    Cited by:

    1. Paolo Bertoletti & Federico Etro & Ina Simonovska, 2018. "International Trade with Indirect Additivity," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 1-57, May.
    2. Lijun Pan & Takatoshi Tabuchi, 2019. "Free Trade Agreement with Endogenous Market Structure," The Japanese Economic Review, Springer, vol. 70(4), pages 426-445, December.
    3. Susumu Cato, 2017. "The optimal tariff structure and foreign penetration," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(1-2), pages 83-94, April.
    4. Federico Etro, 2014. "Optimal Trade Policy under Endogenous Foreign Entry," The Economic Record, The Economic Society of Australia, vol. 90(290), pages 282-300, September.
    5. Federico Etro, 2012. "Endogenous Market Structures and International Trade. II: Optimal Trade Policy," Working Papers 2012:32, Department of Economics, University of Venice "Ca' Foscari".
    6. Kyoungwon Rhee & Moonsung Kang, 2019. "Export Subsidies and Least Developed Countries: An Entry-Deterrence Model under Complete and Incomplete Information," Korean Economic Review, Korean Economic Association, vol. 35, pages 163-182.

    More about this item


    Endogenous entry; gains from trade; import tariff; production subsidy;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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