lec10-eco101-11

lec10-eco101-11 - InternationalTrade Lecture10 c ⃝...

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Unformatted text preview: InternationalTrade Lecture10 c ⃝ Marc-AndreasMuendler UniversityofCalifornia,SanDiego October27,2011 10.Intra-industryTrade Econ101, c ⃝ M.Muendler TheIntra-industryTradeModel • TheIntra-industryTradeModelfocusesontradeinvarietiesofthe samegoodandtakesapartialequilibriumperspective • TheIntra-industryTradeModelrestsontwokeyrelationships – Price-Variety(profitmaximizationpastentry, PP schedule) – Average-cost-Variety(freeentryuntilprofitszero, CC schedule) • Onceinthemarket,firmsmaximizetheirprofits.However,freeentry erodestheirprofitstozeroinequilibrium 10.Intra-industryTrade Econ101, c ⃝ M.Muendler TheIntra-industryTradeModel • Basicingredients(assumptions) – Numberoffactorsofproduction:any,givingrisetoacostfunction – Mobilityoffactorsofproduction:inthebackground – Numberofindustries(goods):2(manufacturesandfood) Differentiatedvarietiesofmanufactures – Imperfectcompetitionin manufactures (transportcosts ) – Keyforce :Internalincreasingreturnstoscale 10.Intra-industryTrade Econ101, c ⃝ M.Muendler DemandforEachVariety Q i = S · [ 1 n- b · ( P i- ¯ P ) ] • Demand Q i foranindividualfirm i ’s variety dependsontotalsalesin themarket S ,thenumberoffirmsinthemarket n ,itsownprice P i andaveragemarketprice ¯ P . b isresponsivenessofquantitytoprice. • Allfirmsfacethesameinversedemand: P d i = ¯ P + 1 b · n- 1 b · S · Q i . • Welookat symmetricequilibrium . Insymmetricequilibrium,...
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lec10-eco101-11 - InternationalTrade Lecture10 c ⃝...

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