Imperfect competition, scale economies, and international trade

Current research suggests that in an imperfectly competitive setting, firms in different countries might find it worthwhile to export the same good back and forth across national boundaries. My thesis attempts to develop this basic insight in several new directions.; The first chapter introduces a Cournot duopoly model of trade. This model, unlike those found in the literature, allows for trade between countries of unequal size in a commodity whose production is subject to declining marginal costs. Two conflicting tendencies emerge from the analysis. If scale economies are slight, the smaller country gains more from trade than does the larger country, just as in the classical trade models. If, however, returns to scale are sharply increasing and the countries differ substantially in size, trade will benefit the larger country while harming the smaller country.; The second chapter proceeds from a different premise: that each producer simultaneously behaves as a Stackelberg "leader" at home and as a "follower" abroad. One implication of this model is that even in the absence of trade, the threat of potential import competition will prompt a producer to price lower than it otherwise would have. The Stackelberg model also implies that despite transportation costs, trade is preferable to autarky. These results differ from those of the standard Cournot approach, which makes no provision for the impact of potential competition, and which suggests that autarky is preferable to trade when transportation costs are high.; The final chapter employs a model of imperfect competition to analyze trade in 16K DRAMs between the U.S. and Japan during the years 1978 through 1982. The analysis suggests that Japan's market was closed to foreign competition to an extent equivalent to a 10 percent import tariff. This market closure caused the U.S. share of DRAM sales in Japan to be less than half of what it would have been under free trade. Nonetheless, the impact of the observed market closure on U.S. welfare was negligible, while the impact on Japanese welfare may have been negative.