Working Paper: NBER ID: w23720
Authors: Keith Head; Barbara J. Spencer
Abstract: Large firms played a central role in the “new trade” models that became a major focus of trade economists in the early 1980s. Subsequent literature for the most part kept imperfect competition but jettisoned oligopoly. Instead, as the heterogeneous firms literature burgeoned in the 2000s, monopolistic competition quickly became established as the workhorse model. The use of oligopoly in trade models has been criticized for reasons that we argue are unpersuasive. Renewed incorporation of oligopolistic firms in international trade is warranted. Quantitative investigations of welfare effects of trade policy should again address the impact of such policies on the allocation of profits across countries.
Keywords: No keywords provided
JEL Codes: F12; F13; F14; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Oligopoly models (D43) | Understanding strategic trade policy (F13) |
| Oligopoly models (D43) | Shift profits from foreign firms to domestic economies (F23) |
| Decline in the use of oligopoly models (D43) | Not justified (Y40) |
| Resurgence of oligopoly models (D43) | Warranted due to addressing realities of competition among large firms (L11) |
| Concentration of market shares among large firms (L11) | Impacts trade flows (F69) |
| Concentration of market shares among large firms (L11) | Welfare effects of trade policies (F13) |