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Imperfect Competition and Trade

Imperfect Competition and Trade. Udayan Roy http://myweb.liu.edu/~uroy/eco41 September 2006. Pro-Competitive Gains From Trade. A small country will gain from trade even if it has imperfect competition.

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Imperfect Competition and Trade

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  1. Imperfect Competition and Trade Udayan Roy http://myweb.liu.edu/~uroy/eco41 September 2006

  2. Pro-Competitive Gains From Trade • A small country will gain from trade even if it has imperfect competition. • In fact, it would gain more from trade than an otherwise identical country that has perfect competition. • This is because an imperfectly competitive economy will not only enjoy the familiar gains from exchange and gains from specialization, it will also enjoy the so-called pro-competitive gains from trade when producers in its imperfectly competitive markets are exposed to competition from foreign producers

  3. The market is a monopoly during autarky. Free trade ends the monopoly by introducing foreign competition. Price Autarky: monopoly A Autarky Monopoly Price Autarky: perfect competition B C D World Price F E Autarky Monopoly Production and Consumption Quantity Consumption, free trade Production, free trade Supply Demand Imports

  4. Trade With Pre-existing Monopoly—Welfare

  5. Free Trade With Monopoly in Place • If monopoly (or any other form of market imperfection) already exists during autarky, opening up a “large” economy to free trade may make matters worse.

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