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<p>This paper examines implications of modes of imperfect competition in structural gravity models. To this end, I employ a parsimonious quantitative general equilibrium model of world trade where, contrary to CES demand models with perfect or monopolistic competition, firm-specific markups vary across destinations. Firms act strategically by choosing optimal quantities or prices depending on their market power. I review the recent literature on the competition-induced endogeneity of gravity estimates and use the model to check the success of bias corrections suggested by Breinlich et&#xa0;al. (<CitationRef CitationID="CR9">2024</CitationRef>) and Heid and Stähler (Econ Model 131:106604 <CitationRef CitationID="CR25">2024</CitationRef>) in Monte Carlo simulations. Further, I examine welfare effects of trade (de)liberalization under oligopoly. I find that when firms behave oligopolistic, trade liberalization leads to higher welfare gains.</p>

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Modes of Imperfect Competition in Structural Gravity Models

  • 期刊论文

  • 发表日期：

    2025年8月11日

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  • Anton Hartl

摘要

This paper examines implications of modes of imperfect competition in structural gravity models. To this end, I employ a parsimonious quantitative general equilibrium model of world trade where, contrary to CES demand models with perfect or monopolistic competition, firm-specific markups vary across destinations. Firms act strategically by choosing optimal quantities or prices depending on their market power. I review the recent literature on the competition-induced endogeneity of gravity estimates and use the model to check the success of bias corrections suggested by Breinlich et al. (2024) and Heid and Stähler (Econ Model 131:106604 2024) in Monte Carlo simulations. Further, I examine welfare effects of trade (de)liberalization under oligopoly. I find that when firms behave oligopolistic, trade liberalization leads to higher welfare gains.