Bottled Water - a Case of Pointless Trade?

25 Pages Posted: 15 Jan 2004

See all articles by Richard Friberg

Richard Friberg

Stockholm School of Economics - Department of Economics

Mattias Ganslandt

Centre for European Law and Economics; Research Institute of Industrial Economics; University of Colorado at Boulder - Department of Economics

Date Written: December 2003

Abstract

Two-way trade in (almost) homogenous products has ambiguous welfare effects if entry is restricted. We examine Swedish imports of bottled water to investigate whether transport cost losses from trade outweigh the partial equilibrium gains from trade (stronger competition and more brands to choose from). Using monthly data for all brands sold in stores during 1998-2001 we estimate a structural model of demand. Assuming one-shot Bertrand competition by multibrand firms, we can use the estimated model to uncover marginal costs. We simulate the effect on consumer and producer surplus of banning imports, finding that banning imports would decrease overall welfare. Expanded choice is the main benefit of trade and disregarding this the net welfare effect of imports in this market are approximately zero - the pro-competitive effect is of the same size as the cost savings associated with replacing foreign, higher cost, suppliers with domestic. Given our choice of market this suggests we should not be overly concerned with the welfare effects of two-way trade in consumer goods that are close to homogenous.

Keywords: Reciprocal dumping, intra-industry trade, nested logit models

JEL Classification: F12, F14, L13, L66

Suggested Citation

Friberg, Richard and Ganslandt, Mattias, Bottled Water - a Case of Pointless Trade? (December 2003). CEPR Discussion Paper No. 4145. Available at SSRN: https://ssrn.com/abstract=482862

Richard Friberg (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9645 (Phone)
+46 8 720 7752 (Fax)

Mattias Ganslandt

Centre for European Law and Economics ( email )

Rue du Luxembourg 3
Bruxelles, BE-1000
Belgium
+32 479 639 383 (Phone)
+32 2 888 9161 (Fax)

HOME PAGE: http://www.celec.eu

Research Institute of Industrial Economics ( email )

Box 55665
S-102 15 Stockholm
Sweden
+46 8 665 4500 (Phone)
+46 8 665 4599 (Fax)

HOME PAGE: http://www.industrialeconomics.se/mg

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-4927588 (Phone)

HOME PAGE: http://www.mattiasganslandt.com

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