MARKET EQUILIBRIUM IN INTERREGIONAL TRADE MODELS UNDER MONOPOLISTIC COMPETITION
I. A. Bykadorov, Yu. N. Ismaiylova, M. V. Pudova
Siberian Institute of Management - branch of the Russian Presidential Academy of National Economy and Public Administration, Novosibirsk, Russian Federation
Keywords: interregional trade, transport costs of "iceberg types", market equilibrium, elasticity
Abstract
We study a homogeneous model of interregional trade under monopolistic competition of producers with additively separable utility and linear production costs. The mass of firms (“the length of the product line”) is determined endogenously, from conditions of free entry. We obtain the local comparative statics of the market equilibrium with respect to transport costs of “iceberg types”. Particular attention is paid to situations of free trade and autarky. We establish the following counter-intuitive result: under high transport costs, trade liberalization can decrease public welfare.
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