DP7600 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, international trade and market structure|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7600|
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.