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Imperfect Competition and the Gains from Trade in a Macro Duopoly Model
Author(s) -
Naish Howard F.
Publication year - 1998
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00102
Subject(s) - economics , duopoly , imperfect competition , macro , marginal cost , microeconomics , wage , constant elasticity of substitution , imperfect , perfect competition , competition (biology) , econometrics , elasticity of substitution , cournot competition , production (economics) , labour economics , ecology , linguistics , philosophy , computer science , biology , programming language
A general‐equilibrium duopoly trade model is developed. In the micro model, constant‐elasticity market demand curves produce backward‐bending reaction functions. This is combined with a macro analysis in which the real wage is determined competitively, while nominal variables depend on the money supply. Trade can lead to large increases in aggregate output, employment, and real wages. The gains from trade are the result of increases in market size, and greater competition in each market. The benefits of trade are largest when marginal‐cost curves slope downward and the labor supply curve is elastic.