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On Trade Models with Variable Markups and Pareto-Distributed Productivity

Author

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  • Ikuto AIBA
  • Atsushi TADOKORO

Abstract

We provide more generalized properties of gains from trade and trade liberalization in monopolistic competition models featuring firm heterogeneity characterized as Paretodistributed productivity and variable markups associated with pro-competitive effects. For a large class of utility functions thatwe consider, firmheterogeneity alters the nature of markup distortion that should be addressed by the pro-competitive effects. Our finding implies that the pro-competitive effects of trade are not effective in correcting such markup distortion unique to heterogeneous firm frameworks. As a result, gains from trade in our framework are characterized as consumption variety expansion and selection effects without efficiency gains. We provide rich insights into the varying impacts of trade and trade liberalization across countries with differences in factors such as market size, technology, and geography.

Suggested Citation

  • Ikuto AIBA & Atsushi TADOKORO, 2024. "On Trade Models with Variable Markups and Pareto-Distributed Productivity," Discussion papers e-24-007, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-24-007
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    More about this item

    Keywords

    Monopolistic competition; Firm heterogeneity; Efficiency; Pro-competitive effect; Gains from trade comparative analysis (fsQCA);
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • 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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