Citation

Discussion Paper Details

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Title: Two and a Half Theories of Trade

Author(s): J Peter Neary

Publication Date: December 2009

Keyword(s): GOLE (General Oligopolistic Equilibrium), granularity, heterogeneous firms and international trade and market structure

Programme Area(s): International Trade and Regional Economics

Abstract: This paper discusses the place of oligopoly in international trade theory, and argues that it is unsatisfactory to ignore firms altogether, as in perfectly competitive models, or to view large firms as more productive clones of small ones, as in monopolistically competitive models. Doing either fails to account for the "granularity" in the size distribution of firms and for the dominance of large firms in exporting. The paper outlines three ways of developing more convincing models of oligopoly, which allow for free entry but do not lose sight of the grains in "granularity": heterogeneous industries, natural oligopoly, and superstar firms.

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Bibliographic Reference

Neary, J. 2009. 'Two and a Half Theories of Trade'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7600