Essays on Trade and Imperfectly Competitive Markets

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Essays on Trade and Imperfectly Competitive Markets

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Title: Essays on Trade and Imperfectly Competitive Markets
Author: Fabinger, Michal
Citation: Fabinger, Michal. 2012. Essays on Trade and Imperfectly Competitive Markets. Doctoral dissertation, Harvard University.
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Abstract: This dissertation is a collection of three essays on markets with imperfect competition, with implications for international economics. The first essay presents an analytic solution framework applicable to a wide variety of general equilibrium international trade models, including those of Krugman (1980), Eaton and Kortum (2002), Anderson and van Wincoop (2003), and Melitz (2003), in multi-location cases. For asymptotically power-law trade costs and in the large-space limit, it is shown that there are parameter thresholds where the qualitative behavior of the model economy changes. In the case of the Krugman (1980) model, the relevant parameter is closely related to the elasticity of substitution between different varieties of goods. The geographic reach of economic shocks changes fundamentally when the elasticity crosses a critical threshold: below this point shocks are felt even at long distances, while above it they remain local. The value of the threshold depends on the approximate dimensionality of the spatial configuration.
This work bridges the gap between empirical work on international and intranational trade, which frequently uses data sets involving large numbers of locations, and the theoretical literature, which has analytically examined solutions to the relevant models with realistic trade costs only for the case of very few locations. The second essay, coauthored with Glen Weyl, extends the incidence-based framework for the analysis of perfectly competitive markets to imperfect competition. We show how, just as under perfect competition, a wide range of comparative statics and policy analyses turn on simple properties of incidence, particularly the rate at which unit taxes are passed through to consumer prices. We derive local and global incidence properties, the division of surplus among deadweight loss, consumer surplus and profits and show how these are linked to one another under a range of imperfectly competitive environments. We then show how incidence functions as a simplifying analytic and pedagogic device, an empirical sufficient statistic and a key structural parameter in both classic and recently popular topics in industrial economics including platforms, concession auctions, mergers, entry, price discrimination, product design, supply chains and advertising. The third essay, coauthored with Gita Gopinath and Oleg Itskhoki, studies pricing of durable goods by producers with market power. The durable nature of these products makes their pricing differ from that of nondurables, since consumer demand depends not only on prices today but also on their expectation of future prices. When firms cannot commit to future prices, pass-through of cost shocks into prices is incomplete and the adjustment is gradual. This is the case even when prices are fully flexible and in environments where non-durable pricing would generate complete pass-through. Prices are also sensitive to demand shocks and mark-ups are pro-cyclical, in contrast to the case of cost shocks when mark-ups are countercyclical. We present these results for the case of a monopolist, for oligopolistic competition and for monopolistic competition.
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