Procompetitive Losses from Trade
31 Pages Posted: 27 Jul 2007
Date Written: June 2007
Abstract
We argue that the procompetitive effect of international trade may bring about significant welfare costs that have not been recognized. We formulate a stylized general equilibrium model with a continuum of imperfectly competitive industries to show that, under plausible conditions, a trade-induced increase in competition can actually amplify monopoly distortions. This happens because trade, while lowering the average level of market power, may increase its cross-sectoral dispersion. Using data on US industries, we document a dramatic increase in the dispersion of market power overtime. We also show evidence that trade might be responsible for it and provide some quantifications of the induced welfare cost. Our results suggest that, to avoid some unpleasant effects of globalization, trade integration should be accompanied by procompetitive reforms (i.e., deregulation) in the nontraded sectors.
Keywords: Markups, Dispersion of Market Power, Procompetitive Effect, Trade, Welfare
JEL Classification: F12, F15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Firm Turnover in Imperfectly Competitive Markets
By Marcus Asplund and Volker Nocke
-
Prices, Spatial Competition, and Heterogenous Producers: An Empirical Test
-
Geographic Concentration and Establishment Size: Analysis in an Alternative Economic Geography Model
By John J. Stevens and Thomas J. Holmes
-
A Gap for Me: Entrepreneurs and Entry
By Volker Nocke