Travail de recherche/Working paper
| Résumé : | This paper studies the impact of trade liberalization when monopolistically competitive and oligopolisticfirms coexist in the same market. The model is characterized by a group of multi-product firms whichbehave strategically and take their impact on market aggregates into account (e.g. the average price, andtotal output) and by a monopolistically competitive fringe. This difference in behavior leads large firms tocharge higher markups. Conditions are derived for the coexistence of both types of firms: heterogeneity inproduction efficiency, captured by economies of scope for large firms, appears as a necessary conditionfor them to coexist at equilibrium. Turning to international trade, free trade increases social welfare, asboth large and small firms become more competitive. However, when only large firms are able to coverthe fixed costs to export, bilateral trade liberalization fosters the exit of small firms, and increases productvariety, but it also lowers consumer surplus through a higher average price. Social welfare increasesunder linear or isoelastic demand but is generally ambiguous. |
