Working paper
Elusive Pro-competitive Effects and Harm from Gradual Trade Liberalization
We develop a two-factor, two-sector trade model of monopolistic competition with variable elasticity of sub- stitution. Firms' pro ts and sizes may increase or decrease with market integration depending on the degree of asymmetry between countries. The country in which capital is relatively abundant is a net exporter of the manu- factured good, although both rm sizes and pro ts are lower in this country than in the country where capital is relatively scarce. The pricing policy adopted by rms depends neither on capital endowment nor country asymme- try. It is determined by the nature of preferences: when demand elasticity increases (decreases) with consumption, rms practice dumping (reverse-dumping).
We study the impact of transfer pricing rules on sales prices, firms’ organizational structure, and consumers’ utility within a two-country monopolistic competition model featuring source-based profit taxes that differ across countries. Firms can either become multinationals, i.e., they serve the foreign market through a fully controlled affiliate; or they can become exporters, i.e., they serve the foreign market by contracting with an independent distributor. Compared to the benchmark cases, where tax authorities are either unable to audit firms or where they are able to audit them perfectly, the use of the OECD’s Comparable Uncontrolled Price (CUP) or Cost-Plus (CP) rule distorts firms’ output and pricing decisions. The reason is that the comparable arm’s length transactions between exporters and distributors, which serve as benchmarks, are not efficient. We show that implementing the CUP or CP rules is detrimental to consumers in the low tax country, yet benefits consumers in the high tax country.
Examining a standard monopolistic competition model with unspecified utility/cost functions, we find necessary and sufficient conditions on their elasticities for welfare losses from emerging trade or market expansion. Two numerical examples explain the losses: excessive or insufficient entry of firms can be aggravated by market enlargement (under unrealistic elasticities).
Smoking is a problem, bringing signifi cant social and economic costs to Russiansociety. However, ratifi cation of the World health organization Framework conventionon tobacco control makes it possible to improve Russian legislation accordingto the international standards. So, I describe some measures that should be taken bythe Russian authorities in the nearest future, and I examine their effi ciency. By studyingthe international evidence I analyze the impact of the smoke-free areas, advertisementand sponsorship bans, tax increases, etc. on the prevalence of smoking, cigaretteconsumption and some other indicators. I also investigate the obstacles confrontingthe Russian authorities when they introduce new policy measures and the public attitudetowards these measures. I conclude that there is a number of easy-to-implementanti-smoking activities that need no fi nancial resources but only a political will.
One of the most important indicators of company's success is the increase of its value. The article investigates traditional methods of company's value assessment and the evidence that the application of these methods is incorrect in the new stage of economy. So it is necessary to create a new method of valuation based on the new main sources of company's success that is its intellectual capital.