Monopolistic Competition and International Coordination of Entry Policy Revisited

This study develops a model of international trade under monopolistic competition with non-homothetic quadratic preferences that generate variable markups, and analyzes the effects of trade and domestic competition policies. It is shown that, among others, trade liberalization increases the long-run equilibrium varieties of differentiated goods available to consumers, but reduces welfare in the long run, and depending on the parameters of the model, the mass of firms under cooperative solution can be higher or lower than the mass of firms under noncooperative solution.