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Why are losses from trade unlikely?

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  • Bykadorov, Igor
  • Gorn, Alexey
  • Kokovin, Sergey
  • Zhelobodko, Evgeny

Abstract

Examining a standard monopolistic competition model with unspecified utility/cost functions, we find necessary and sufficient conditions on their elasticities for welfare losses to arise from trade or market expansion. Two numerical examples explain the losses (under unrealistic elasticities).

Suggested Citation

  • Bykadorov, Igor & Gorn, Alexey & Kokovin, Sergey & Zhelobodko, Evgeny, 2015. "Why are losses from trade unlikely?," Economics Letters, Elsevier, vol. 129(C), pages 35-38.
    • Handle: RePEc:eee:ecolet:v:129:y:2015:i:c:p:35-38
    DOI: 10.1016/j.econlet.2015.02.003
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    References listed on IDEAS

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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Monika Mr?zov? & J. Peter Neary, 2014. "Together at Last: Trade Costs, Demand Structure, and Welfare," American Economic Review, American Economic Association, vol. 104(5), pages 298-303, May.
    3. Bykadorov Igor & Kokovin Sergey & Zhelobodko Evgeny, 2013. "Investments in Productivity under Monopolistic Competition: Large Market Advantage," EERC Working Paper Series 13/08e, EERC Research Network, Russia and CIS.
    4. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques‐François Thisse, 2012. "Monopolistic Competition: Beyond the Constant Elasticity of Substitution," Econometrica, Econometric Society, vol. 80(6), pages 2765-2784, November.
    5. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    6. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques-François Thisse, 2011. "Monopolistic competition in general equilibrium: Beyond the CES," PSE Working Papers halshs-00566431, HAL.
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    8. Igor A. Bykadorov & Alexey A. Gorn & Sergey G. Kokovin & Evgeny V. Zhelobodko, 2014. "Losses From Trade In Krugman’s Model: Almost Impossible," HSE Working papers WP BRP 61/EC/2014, National Research University Higher School of Economics.
    9. Peter Neary & Monika Mrazova, 2013. "Not so demanding: Preference structure, firm behavior, and welfare," Economics Series Working Papers 691, University of Oxford, Department of Economics.
    10. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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    Citations

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    Cited by:

    1. Igor Bykadorov & Andrea Ellero & Stefania Funari & Sergey Kokovin & Pavel Molchanov, 2016. "Painful Birth of Trade Under Classical Monopolistic Competition," HSE Working papers WP BRP 132/EC/2016, National Research University Higher School of Economics.
    2. Dhingra, Swati & Morrow, John, 2017. "Efficiency in large markets with firm heterogeneity," Research in Economics, Elsevier, vol. 71(4), pages 718-728.
    3. Kichko, Sergey, 2017. "Input–output linkages and optimal product diversity," Economics Letters, Elsevier, vol. 158(C), pages 58-61.
    4. Toulemonde, Eric, 2017. "Does the market deliver the right technology?," Economics Letters, Elsevier, vol. 150(C), pages 95-98.
    5. Kokovin, Sergey & Molchanov, Pavel & Bykadorov, Igor, 2022. "Increasing returns, monopolistic competition, and international trade: Revisiting gains from trade," Journal of International Economics, Elsevier, vol. 137(C).
    6. Igor Bykadorov, 2023. "The Open Monopolistic Competition Models: Market Equilibrium and Social Optimality," Mathematics, MDPI, vol. 11(19), pages 1-13, October.
    7. Igor Bykadorov & Andrea Ellero & Stefania Funari & Sergey Kokovin & Pavel Molchanov, 2015. "Pro-competitive effects and harmful trade liberalization in multi-country world," Working Papers 6, Venice School of Management - Department of Management, Università Ca' Foscari Venezia.
    8. Bykadorov, Igor & Kokovin, Sergey, 2017. "Can a larger market foster R&D under monopolistic competition with variable mark-ups?," Research in Economics, Elsevier, vol. 71(4), pages 663-674.

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    More about this item

    Keywords

    Market distortions; Trade gains; Variable markups; Demand elasticity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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