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A Case of Factor Price Equalization under Price Discrimination

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Title: A Case of Factor Price Equalization under Price Discrimination
Authors: Funatsu, Hideki Browse this author
Zhao, Laixun Browse this author
Keywords: Tariff protection
Trade pattern reversal
Wage inequality
Factor price equalization
Issue Date: 2006
Publisher: Graduate School of Economics and Business Administration, Hokkaido University
Journal Title: Economic Journal of Hokkaido University
Volume: 35
Start Page: 103
End Page: 113
Abstract: This simple paper analyzes trade between a competitive country and a monopoly country in a sector-specific factors model. It is shown that the wage rate rises in the competitive country while both wages and profits fall in the monopoly country when trade is opened up. Workers and the monopoly firm in the latter country may lobby for protection, which causes price discrimination and trade pattern reversal. In contrast to conventional wisdom, factor prices are not equalized under free trade but equalized under price discrimination and dumping caused by a high-tariff. (JEL F11, F12, F13)
Type: bulletin (article)
Appears in Collections:Economic Journal of Hokkaido University > Vol. 35

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