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Gains from the trade: the hold up problem

By M. West


In the presence of product market imperfections and holdups, this paper identifies efficiency gains resulting from international trade and economic integration. In a closed economy, a bilateral monopoly is operating and inefficiencies arise in both the input and output markets. As the economy opens up to trade, procompetitive effects in the product market suppress the margin between prices and marginal costs increasing efficiency. If downstream firms become internationally mobile, productivity gains may arise from increasing returns to scale and intensified competition in the input market. The paper concludes with a discussion of the distribution of the welfare gains

Topics: HF Commerce
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 1996
OAI identifier: oai:eprints.lse.ac.uk:20663
Provided by: LSE Research Online
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