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Sub-national Differentiation and the Role of the Firm in Optimal International Pricing

Author

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  • Balistreri, Edward J.
  • Markusen, James R.
Abstract
We illuminate the relationship between optimal firm pricing and optimal trade policy by exploring a generalized model that accommodates product differentiation at both the national and sub-national levels. We assume monopolistic competition in the differentiated products at the sub-national level. When the national and sub-national substitution elasticities are similar we find little opportunity for small countries to improve their terms of trade through trade distortions, because firms play an important preemptive role in optimally pricing unique varieties. We contrast this with standard applications of perfect-competition Armington models, which exhibit high optimal tariffs—even for relatively small countries.

Suggested Citation

  • Balistreri, Edward J. & Markusen, James R., 2005. "Sub-national Differentiation and the Role of the Firm in Optimal International Pricing," Conference papers 331370, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331370
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International Relations/Trade; Agricultural and Food Policy;

    JEL classification:

    • F1 - International Economics - - Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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