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represents a significant proportion of total world demand, the global market may be able to support only a small number of enterprises (1)Increasing product variety and reducing cost If a national market is small, there may not be enough demand to enable producers to realize economies of scale for certain products. Accordingly, those products may not be produced, thereby limiting the variety of products available to consumers. Alternatively, they may be produced, but at such low volumes that unit costs and prices are considerably higher than they might be if economies of scale could be realized As nations trade with each other, individual national markets are combined into a larger world market. As the size of the market expands due to trade, individual firms may be able to better attain economies of scale According to new trade theory, each nation may be able to specialize in producing a narrower range of products than it would in the absence of trade, yet by buying goods that it does not make from other countries, each nation
can simultaneously increase the variety of goods available to its consumers and lower the costs of those goods As a result, trade offers an opportunity for mutual gain (it allows the specialization of production, the realization of scale economies, the production of a greater variety of products, and lower prices) even when countries do not differ in their resource endowments or technology (2)Economies of scale, first mover of trade and the pattern of trade First mover advantages are the economic and strategic advantages that accrue to early entrants into an industry The ability to capture scale of economies ahead of later entrants, and thus benefit from a lower cost structure New trade theory argues that for those products where economies of scale are significantly and represent a substantial proportion of world demand, the first mover in an industry can gain a scale based cost advantage that later entrants find most impossible to match The first movers in an Industry may get a lock on the world market that discourage subsequent entry For example, in the commercial aircraft industry, Boeing and Airbus are already in the industry and have the benefits of economies of scale discourages new entry and reinforces the dominance of America and Europe in the trade of midsize and large jet aircraft. This dominance is further reinforced because global demand may not be sufficient to profitably support another producer of midsize and large jet aircraft in the industry. The no. of firm from certain industries is very limited such as the chemical industry, heavy construction equipment industry, heavy truck industry, tire industry, consumer electronics industry, jet engine industry and the computer software industry (6)Porter’s national competitive advantage In explaining why a nation achieves international success in a particular industry than other nations