Losses from Trade in Krugman's Model: Almost Impossible

Bykadorov, Igor; Gorn, Alexey; Kokovin, Sergey; Zhelobodko, Evgeny

doi:10.2139/ssrn.2467561

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Losses from Trade in Krugman's Model: Almost Impossible

Higher School of Economics Research Paper No. WP BRP 61/EC/2014

12 Pages Posted: 18 Jul 2014

See all articles by Igor Bykadorov

Igor Bykadorov

Sobolev Institute of Mathematics; Novosibirsk State University

Alexey Gorn

University of Liverpool - Management School (ULMS)

Sergey Kokovin

National Research University Higher School of Economics (Moscow)

Studying the standard monopolistic competition model with unspecified utility/cost functions, we find necessary and sufficient conditions on the function elasticities, when an expanding market or trade incur welfare losses. Two numerical examples explain why: either excessive or insufficient entry of firms is aggravated by market growth. The variable marginal cost enforces the harmful effect. Still harm looks practically improbable.

Keywords: Market distortions, Trade gains, Variable markups, Demand elasticity.

JEL Classification: F12, L13

Suggested Citation: Suggested Citation

Bykadorov, Igor and Gorn, Alexey and Kokovin, Sergey and Zhelobodko, Evgeny, Losses from Trade in Krugman's Model: Almost Impossible (July 17, 2014). Higher School of Economics Research Paper No. WP BRP 61/EC/2014, Available at SSRN: https://ssrn.com/abstract=2467561 or http://dx.doi.org/10.2139/ssrn.2467561