Trade and imperfect competition in general equilibrium

This paper employs a multi-industry general equilibrium model of oligopolistic competition, free market entry and trade in which capital is used to establish firms and labor is used for production. We show that both absolute and relative endowments matter for the pattern of trade. We demonstrate that market entry to each industry is either too excessive or too moderate while the effect on firm size is ambiguous. If countries are sufficiently symmetric, trade will increase the wage-rental ratio in both countries. Furthermore, trade will increase per-capita consumption in capital-intensive industries and reduce it in labor-intensive industries. Nevertheless, trade will be mutually welfare-improving under relatively mild conditions. (C) 2014 Elsevier B.V. All rights reserved.