NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Measuring the Gains from Trade under Monopolistic Competition

Robert C. Feenstra

NBER Working Paper No. 15593
Issued in December 2009
NBER Program(s):International Trade and Investment

Three sources of gains from trade under monopolistic competition are: (i) new import varieties available to consumers; (ii) enhanced efficiency as more productive firms begin exporting and less productive firms exit; (iii) reduced markups charged by firms due to import competition. The first source of gains can be measured as new goods in a CES utility function for consumers. We argue that the second source is formally analogous to the producer gain from new goods, with a constant-elasticity transformation curve for the economy. We suggest that the third source of gain can be measured using a translog expenditure function for consumers, which in contrast to the CES case, allows for finite reservation prices for new goods and endogenous markups.

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Document Object Identifier (DOI): 10.3386/w15593

Published: Robert C. Feenstra, 2010. "Measuring the gains from trade under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 43(1), pages 1-28, February. citation courtesy of

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