A Monopoly Reason Why Autarky Might Be Best for a Large Country
12 Pages Posted: 23 May 2005
Will all countries gain from free trade? Two countries, one with a large and the other a small population, are modeled. Once trade is opened, real income rises in the small country and falls in the large one. The intuition is that, without trade, the large country's local monopoly makes profits at the expense of its consumers. With trade, the foreign duopolist earns some of the profits, even though the industry profits are smaller. Average home consumption falls, even though all the home citizens, except the producer, benefit. This can explain the objections to the lifting of economic barriers.
Suggested Citation: Suggested Citation