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Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly

International Trade & the World Economy;  Charles van Marrewijk. CHAPTER 9; IMPERFECT COMPETITION. Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions.

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Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly

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  1. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  2. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  3. International Trade & the World Economy;  Charles van Marrewijk Introduction Joseph Stiglitz (1942 - )

  4. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  5. International Trade & the World Economy;  Charles van Marrewijk Monopoly A monopolist equates marginal revenue (MR) and marginal cost (MC) to determine optimal output; Note: price is higher than MC

  6. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  7. International Trade & the World Economy;  Charles van Marrewijk Monopoly in general equilibrium; autarky • Main assumptions • There is a single producer of manufactures; this is a monopoly market • There are many producers of food; the market is perfectly competitive • The markets for factors of production (capital and labor) are also perfectly competitive (the monopolist of manufactures therefore has no monopsony power on its input markets). • All firms maximize profits. • All consumers maximize

  8. International Trade & the World Economy;  Charles van Marrewijk Monopoly in general equilibrium; autarky Monopoly producer for manufactures

  9. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  10. International Trade & the World Economy;  Charles van Marrewijk Oligopoly; quantity competition, Cournot-Nash equilibrium Pricing rule:

  11. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  12. International Trade & the World Economy;  Charles van Marrewijk The pro-competitive effect of international trade

  13. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  14. International Trade & the World Economy;  Charles van Marrewijk Reciprocal dumping Cournot competition model with 2 identical countries and positive (iceberg) transport costs; trade results in ‘cross-hauling’ / ‘reciprocal dumping’: product sold at lower mark-up abroad than at home. Producers accept lower mark-up abroad because of perceived higher elasticity of demand (lower market share) Despite ‘pointless and costly’ two way trade welfare increases if the transport costs are not too high as a result of the pro-competitive gains from trade.

  15. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  16. International Trade & the World Economy;  Charles van Marrewijk Application: the Twaron takeover An example of pro-competitive gains from trade in reverse: the Twaron (Dutch firm) takeover by Teijin (Japanese firm) reduces the number of competitors in the aramid fiber market (used for friction, sealing, bullet proof vests, etc.) from 3 to 2 (other competitor is DuPont). Depending on price elasticity this raises the market price and the profit level for the remaining firms.

  17. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 9; IMPERFECT COMPETITION Introduction Monopoly Monopoly in general equilibrium; autarky Oligopoly The pro-competitive effect of international trade Reciprocal dumping Application: the Twaron takeover Conclusions

  18. International Trade & the World Economy;  Charles van Marrewijk Conclusions • Imperfect competition implies a mark-up of price over marginal costs • Size of mark-up depends on price elasticity of demand and degree of competition • Imperfect competition leads to sub-optimal outcome in general equilibrium (deviation between MRS and MRT) • International trade increases market competion and reduces the distortionary effect of imperfect competition (pro-competitive gains)

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