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Industrial Behaviour, the Technology of Demand, and the Pattern of International Trade between Identical Countries

Published online by Cambridge University Press:  17 August 2016

B. Lyons
B. Lyons*
Affiliation:
St Johns College, Cambridge
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Extract

The aim of this paper is to clarify three issues relating to the empirical investigation of prices and import penetration when marginal costs are not increasing. The first is to demonstrate explicitly the simultaneous determination of industrial prices and import penetration. Second, to examine how oligopoly and/or product differentiation may lead to international trade between identical countries. Third, to emphasise the importance of the technology of demand when trying to explain price and trade. The technology of production is often mentioned in this context, yet the technology of demand, by which is meant the characterisation of the tastes of consumers, is usually ignored but is shown to be of some importance.

In order to simplify the discussion it is assumed that all firms in all countries have access to identical technologies and factor costs. Unlike in the usual textbook models, marginal costs are assumed to be nonincreasing. Furthermore, the consumption patterns in each country are taken to be identical. There is, however, one difference between selling on the home market, and selling abroad — there are trading costs. These may result from transport costs, tariffs, social, linguistic and legal factors, or anything else, but they are assumed to apply with equal magnitude to each country. These assumptions permit a clearer analysis of the effects of oligopoly and product differentiation.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 47 , Issue 3-4 , September 1981 , pp. 243 - 258
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1981 

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References

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