Two and a Half Theories of Trade

29 Pages Posted: 11 Jan 2010

See all articles by J. Peter Neary

J. Peter Neary

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: December 2009

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.

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

JEL Classification: F10, F12

Suggested Citation

Neary, J. Peter, Two and a Half Theories of Trade (December 2009). CEPR Discussion Paper No. DP7600, Available at SSRN: https://ssrn.com/abstract=1533205

J. Peter Neary (Contact Author)

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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