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Market Integration, Choice of Technology, and Welfare
Author(s) -
Hansen Jørgen Drud,
Nielsen Jørgen UlffMøller
Publication year - 2010
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/j.1467-9396.2010.00874.x
Subject(s) - monopolistic competition , duopoly , economics , homogeneous , industrial organization , productivity , restructuring , marginal cost , welfare , competition (biology) , fixed cost , vertical integration , microeconomics , international trade , market economy , macroeconomics , monopoly , ecology , physics , finance , biology , thermodynamics
This paper develops an international trade model where firms in a duopoly may diversify their technologies for strategic reasons. The firms face the same set of technologies given by a tradeoff between marginal costs and fixed costs, but depending on trade costs firms may choose different technologies. Market integration may induce a technological restructuring where firms either diversify their technologies or switch to a homogeneous technology. In general, market integration improves welfare. However, a small decrease of trade costs which induces a switch from heterogeneous technologies to a homogeneous technology may locally reduce global welfare. The model also shows that productivity differences lead to intra‐industry firm heterogeneity in size and exports similar to the “new–new” trade models with monopolistic competition.