CHAPTER 6

ECONOMICS OF SCALE,IMPERFECT

COMPETITION,AND INTERNATIONAL

TRADE

The Imitation Lag Hypothesis

– The Imitation Lag Hypothesis• Michael V. Posner(1961) • Imitation lag-demand lag=net lag

– The Product Cycle Theory• Michael V. Posner(1966)• A typical “new product”(F2)• Dynamic comparative advantage• Test: there should be a positive correlation

between R&D expenditures and successful export performance by industry.

• Dinopoulos, Oehmker and Segerstrom(1993)

The trade pattern in the Product Cycle Theory

time

Production,consumption of product

production

consumption

New product stage Maturing product stage

Standardized product stage

Exports Imports

The Linder Theory

• Staffan Burenstam Linder(1961)

• Demand-oriented

• Overlapping demand

• International trade in manufactured goods will be more intense between countries with similar per capita income levels than between countries with dissimilar per capita income levels.

• Tests: the greater the difference between the per capita incomes of country and its trading partner, the less intensely the two countries will trade with each other.

Overlapping Demands in the Linder Model

Income levels

Goods

A

B

H

GF

E

D

C

I

Country 1’s income

Cou

ntry

1’s

dem

and

and

prod

ucti

onCou

ntry

2’s

dem

and

and

prod

ucti

on

Country 2’s income

The Kemp Model

•Murray C. Kemp(1964)

•Economies of scale (external economies) and a convex PPF

• A multitude of trading possibilities

X

Y

A Convex-to-the-Origin PPF

X

Y

PX/PY

E

G

N

M

The Convex PPF and Different Possible TOT

X

Y

PX/PY

E

F

M

N

TOT1

TOT2

TOT3

The existence of economies of scale generates considerable uncertainty concerning the production and trade pattern.

Q

P,C

D

ACSWISS

QS

PS

ACCHINA

QC QC

External Economics and Specialization

The Krugman Model

•Paul Krugman(1979)

•Economies of scale( internal to the firm) and monopolistic competition

Average Versus Marginal Cost

monopoly

QM

P

D=AR

MR

MC

PMAC

Monopolistic competition

Q

P

DToyota

D

MR

MC

QM

PM

N

P,CCC

PP

N1 N0

Equilibrium in a Monopolistically Competitive Market

N

P,CCC

PP

N0

Effects of a Larger Market

N1

贸易前 A国市场

贸易前 B国市场

贸易后一体化市场

汽车总销售量 900 000 1 600 000 2 500 000

厂商数 6 8 10

每个厂商销售量 150 000 200 000 250 000

平均成本 1 000 875 800

市场价格 1 000 875 800

Equilibrium in the Automobile Market

Trade in a World Without Increasing Returns

Trade With Increasing Returns and Monopolistic Competition

Other Post-H-O theories

•Reciprocal dumping model–Brander and Krugman(1983)

Duopoly market

–Trade in a homogeneous product

–Positive welfare aspect: pro-competitive effect

–Negative welfare aspect: waste

Dumping

Q

P

D

DF=MRF

MR

MC

QTQDQF

PF

PD

Intra-Industry Trade

– Reasons for IIT in Product Category

• Product differentiation

• Transport costs and geographical location

• Dynamic economies of scale

• Degree of product aggregation

• Differing income distributions in countries

• Differing factor endowments and product variety

The Level of a Country’s IIT

• Bela Balassa(1986)

)]/()/[(

)/()/(1

MMXX

MMXXI

ii

iiI