Permalink : http://hdl.handle.net/2115/5394

KEYWORDS : Market Structure, Export Subsidy, Market Size, Degree of Monopoly

This paper investigates the role of government in the determination of equilibrium market structure under imperfect competition. We show that market size, the degree of monopoly, and fixed cost for a plant are crucial. Multinational firms are likely to emerge in an economy with large markets, but the degree of monopoly may restrict this possibility. A higher degree of monopoly creates an incentive for governments to subsidize, and intra-industry trade may occur even in an economy with large markets. (JEL F12, F23, L13)