Oligopoly in International Trade: Rise, Fall and Resurgence
Large firms played a central role in the “new trade” models that became a major focus of trade economists in the early 1980s. Subsequent literature for the most part kept imperfect competition but jettisoned oligopoly. Instead, as the heterogeneous firms literature burgeoned in the 2000s, monopolistic competition quickly became established as the workhorse model. The use of oligopoly in trade models has been criticized for reasons that we argue are unpersuasive. Renewed incorporation of oligopolistic firms in international trade is warranted. Quantitative investigations of welfare effects of trade policy should again address the impact of such policies on the allocation of profits across countries.
We are grateful to James A. Brander, J. David Richardson, Jacques Thisse and an anonymous referee for helpful comments. We also thank Vanessa Alviarez for assembling the data used in Figure 4 and Chenying Yang for the data for Figure 2. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Keith Head & Barbara J. Spencer, 2017. "Oligopoly in international trade: Rise, fall and resurgence," Canadian Journal of Economics/Revue canadienne d'économique, vol 50(5), pages 1414-1444. citation courtesy of