Implicit Mercantilism, Oligopoly, and Trade*

Abstract

The authors propose a new model of trade between developing and advanced economies to capture the effects of important asymmetries in the organizations of their industries. This model demonstrates how the industrial structure of a developing economy can evolve to produce what the authors call "implicit mercantilism." Free entry plus domestic oligopoly in a developing economy, when combined with competitive behavior in developed countries, generates several distinct stages of mercantilism hitherto unrecognized in the literature. Each stage has its own pattern of interaction with a competitive trading world. As the production costs and techniques of the mercantile society converge to world standards, its citizens will first lose from this progress, only later to gain. Both effects are due to certain relationships between home prices and world prices, newly identified in this paper. The analysis is particularly relevant to the structure of Asian economies, and to policy debates about their reform.

Horizontal mergers with free entry

“…Hence, slope of the residual demand, that is, AP AðQ−BÞ ¼ f V f −1 ðA−PÞ , remains the same for a given price.20 We are deeply grateful to Hiroshi Ohta for this insight. SeeMcGuire and Ohta (2005) for a proof of this type applied in a different context.…”

The Legacy of Conventional Textbook Trade Theory in the Light of Globalization

“…Similar recommendations had already been developed by Jean Bodin (1576) in his Les six livres de la république 1576. He pledged a trade surplus by means of export duties on goods whose importation is indispensable to foreign countries, low import duties on required raw materials, and high import tariffs on foreign finished products (Kolb, 2017;Tilly, 2015;McGuire & Ohta, 2005).…”

Urban development, excessive entry of firms and wage inequality in developing countries

“…Note that excessive firm entry is defined in a similar manner to excessive capacity, in which the equilibrium unit cost exceeds the minimum average cost McGuire and Ohta (2005). andOhta and McGuire (2015) showed that excessive entry can occur in an oligopolistic market for a developing economy.…”