Industry structure, market structure and international trade: theoretical and empirical observations

• Main Author: White, Lynda E.
• Format: Others
• Language: English
• Published: 2008
• Online Access: http://hdl.handle.net/2429/2338

This paper describes international trade activity as affected by the structure of markets and industries. The paper builds upon recent international economic literature that models international trade within imperfect markets. Arguments for trade intervention by national governments in order to shift industry rents to the home nation are further surveyed. Similar trade models are used to explain economic growth from both a national and global standing. A Cournot perception of competitive behaviour is employed within a basic model developed of two-country, intra-industry, oligopolistic trade of a homogeneous good. The model predicts that lower marginal costs lead to higher output and lower relative costs lead to higher relative market share than of the foreign rival industry. However, firm number within the relative industry can offset cost effects. If fixed costs are present, gains from rationalization may be realized through trade and result in higher industry concentration. In order to test the hypothesis that higher concentration of industry leads to greater trade, particularly export trade, the paper applies regression technique to measure the relationship between Canadian industry exports and a variety of concentration variables. Results show more highly concentrated industries to have greater export volume. When standardized export and concentration variables are used, weak evidence is presented that export and concentration in Canada are positively related. However, analysis of United States industries confirms that concentration explains a significant amount of industry propensity to export. Based on testing and other empirical results, it is concluded that rationalization of costs associated with export trade and/or ability to discriminate between markets motivates trade in concentrated industries. Under imperfect market conditions, government may want to intervene in trade by promoting higher concentration of industry if net social surplus gains through trade can be realized. Competition policy may promote not only combine activity but also cooperation between firms in order to reduce duplication of international trading costs. If competition policy affects international trade partners, regulators of world trade activity may take interest in national policy related to industry structure and competition as it affects global welfare. === Business, Sauder School of === Graduate