foreign trade under imperfect competiton. aim: from comparative advantage to competitive advantage...
TRANSCRIPT
Foreign Trade under imperfect competiton
Aim:
From comparative advantage to competitive advantage
comparative advantage: Differnces between nations
competitive advantage: Differences between enterprises
Causal factors
Decreasing average costs (cost digression, possibly due to economies of scale )
imperfect competition with market power
Differentiated products
Internally decreasing costs
Costs given economies of scale
dK/dx
€
x
Revenue
Costs
K/xp
x‘
Loss
Natural monopoly
dK/dx
pN
x
Marginal Revenue
K/x
pM
xM
Cournot Solution
Global economies to scale
pH=pW
GK
p
NH = GE H+FGEH
K/x
xH x
N H+F
xW
Welfare effects of trade
If there are no price effects and global economies to scale, then
Trade is welfare increasing due to lower costs Only producers benefit through higher profits It becomes important where production is located (
If there is a national bias in ownership or workers participate in „profits“ through higher wages.)
The non-producing countries loose Countries which are bigger have an advantage
Bigger is better!
National decreasing costs
GK
pN
x
GE
DK
pH
xH xHTin HxHT
für H
pW
Welfare effects
GK
pN
x
GE
DK
pH
xH xHTin HxHT
für H
pW
Welfare effects
If trade changes the monopoly into perfect competition, then
There is a benefit from trade Through a reduced price for consumers Consumers gain by an increades consumer
surplus Producers loose
Generally
In real life both effects tend to be present Competition effect: Consumers benefit
from increased competition in the form of decreased prices
Cost reduction effect: producers benefit because of reduced production costs