ALEKSANDR VASHCHILKO

aleksandr.vashchilko@vanderbilt.edu

cell: (814) 308 - 4581

fax:  (615) 343 - 8495

Working Papers

“Short-Run Effects of Trade Liberalization, When Market Structure Differs across Sectors”

This research studies the effects of trade liberalization in short-run when the market structure differs across sectors. Some sectors are characterized by perfect competition market structure, when firms, having constant returns to scale and produce a homogeneous commodity, charge a price equal to the marginal cost. At the same time other sectors might be better characterized by monopolistic competition market structure, when a firm exploits the demand for variety that is distinctive in some ways from other varieties. Using a traditional specific-factors model with perfect competition in one sector and monopolistic competition with heterogeneous firms in another sector, the examination is of the effects of trade liberalization for the case sectors having different market structures.

“Trade Liberalization with Pro-Competitive Effect”

Starting from Krugman (1979), CES preferences have often been used in monopolistic competition market structure. As indicated in Melitz (2003), such specification of preferences does not allow for a pro-competitive effect of trade liberalization when the number of firms in the market and the prices they charge affect a firm’s markup. This study relaxes the constant elasticity assumption, by integrating specification of preferences, as in Behrens and Murata (2005), into Melitz‘s framework. In this way, more plausible predictions about trade liberalization could be conceived.