Martin 7'17'3 Trade theory

1
Martin 7.1-7.3 Trade theory

• Badsic comparative advantage - you should know
  this
• Heckscher Ohlin Leontieff background
• Intra industry trade - be aware that this is the
  main form of trade in industrial goods- horzontal
  and verical division of labour at firm level
• Cournot Model again

2
Martin Chapters 8 9

• PH seminar Nov 26
• Trade and competition
• Multinational firms again
• trade industry and competition policies within
  and of EU to follow - see last part of PH notes

3
7.4 Competition and Trade

• Jacquemin Sapir show that open borders within
  the EU improve competition
• breaks down barriers to entry
• BUT other research shows that trade
  liberalisation alone not enough
• EU competition policy desoigned after 1957 to
  erode private barriers to entry after state ones
  removed

4
Martin Ch 8

• 8.1 Theory of strategic trade policy - see
  Jacquemin Kyklos 1989 and A Smith EER 1987
• Choice of investment vs export
• NB see also AER May 1985 symposium the
  Contribution of Hymer

5
Krugman on Strategic trade Policy

• States can precommit (eg to Airbus subsidy) to
  deter entry by others thus shifting rents to
  themselves
• Boeing Airbus model
• But sensitive to assumptions Krugman argues
  Japanese lost money on DRAMS
• see Is Free trade Passé JEP 1987

6
Exchange rates and export pricing

• Pass through firms do not set price MC
• typically price is set in export currency and
  effect of exchange rate change is substantially
  taken in highe profit margins
• especially in oligopolistic markets

7
Trade under imperfect competition

• Modern accounts stress that a major benefit of
  increased international trade is not the
• joining of two perfectly competitive markets
• but extension of competition and free entry to
  non competitive markets

8
Concentration in global markets

• Many world markets highly concentrated
• microprocessors, software (MS), agricultural
  traders (soya etc)
• need to know if real dominance - is entry
  possible ?
• and is dominance being abused?

9
Multinationals

• 1985 AER Symposium Contribution of Hymer
  Dunning, Teece Rugman
• but see also http//www2.umist.ac.uk/management/ib
  /team/yamin/pubs/Yamin-1991-ReassessmentHymer.pdf

10
Why MNCs

• Strategic choice in behaviour (Hymer)
• Strategic choice in structure (Smith/Jacquemin)
• Transactions costs efficiency (Dunning etc post
  Williamson based on Coase)

11
Dunning model OLI

• Ownership firm specific assets/knowhow
• Location who not just export- erg cheap labour
• Internalisation why not licence, cf Babcock,
  Benetton, MacDonalds, Coca Cola
• (NB http//www.mcdonalds.com/corp/franchise.html)
  

12
Ch 9 summary

• Export Cartels
• Voluntary export restraints
• dumping - not same as predatory pricing