No abstract

We study the model of interregional trade under monopolistic competition of producers. We obtain a local comparative statics of symmetric social optimality with respect to transport costs. Particular attention is paid to situations of free trade and autarky. For the case of two regions, counterintuitive results we obtain that (1) with low transport costs in one of the regions, public welfare can either increase or decrease; (2) when transport costs are high, trade liberalization worsens public welfare in one region and improves it in another.

We study a homogeneous model of interregional trade under monopolistic competition of producers with additively separable utility and linear production costs. The mass of firms (“the length of the product line”) is determined endogenously, from conditions of free entry. We obtain the local comparative statics of the market equilibrium with respect to transport costs of “iceberg types”. Particular attention is paid to situations of free trade and autarky. We establish the following counter-intuitive result: under high transport costs, trade liberalization can decrease public welfare.