Large and small firms in a global market: David vs. Goliath

Journal of International Economics. 2018. Vol. 110. P. 103–118.

Parenti M.

This paper studies the impact of trade liberalization when large and small firms coexist in the same market.
I develop a model of imperfect competition where a few oligopolistic firms coexist with a monopolistically
competitive fringe. The former have a direct impact on the industry average price level, which depends on
the breadth of their product scope. Oligopolists produce higher output per worker, charge higher markups,
but also sell at higher prices than monopolistic single-product firms. Under linear demand, trade liberalization
triggers the exit of small firms and the entry of foreign large firms, leading to more product variety but
also to a higher average price. For a broad class of demand functions, the entry of an oligopolist induced by
trade liberalization has a negative impact on consumer surplus. Producer surplus rises, but the total effect
on welfare is ambiguous.

Ключевые слова: international trade, monopolistic competition, Multi-product firms, Oligopolistic market structure

ПУБЛИКАЦИЯ ПОДГОТОВЛЕНА ПО РЕЗУЛЬТАТАМ ПРОЕКТА: Теория несовершенных рынков, городская и региональная экономика, международная и межрегиональная торговля (2018)