C. Market structure and trade
    (market structure-based models and gains from trade)

1. Trade when there is domestic market power

    Market power: Firms can influence prices and earn economic profits (because of high barriers to entry)

    Situation: industry is concentrated at the national level, but competitive at the international level.
    In the second part of the course, after the midterm, we'll take a look at situations of global market power

    Exercise: Domestic monopoly worksheet
    (P1=50; P2=70; P3=100; P4=120)

    Worksheet 1
    Worksheet 2 - summary results

    In cases of domestic market power, free trade yields larger gains from trade by serving as an antitrust policy

    In general: the best safeguard for consumers is competition among suppliers.
    Globalization forces domestic firms to compete against the most efficient firms in the world.
    The domestic firms must then be efficient themselves--deliver the product that consumers want at a competitive price or lose your customers to foreign suppliers

    Trade gain #4: Trade can promote competition and undermine domestic market power.

2. Trade when there is product variety

    Intra-industry trade of differentiated products
    (firms do not produce identical products as they would with perfect competition)

Trade with overlapping demands

    Example: movies

    Produce for your mass market at home
    Export to niche markets abroad
    Similar for cars

    Trade gain #5: Trade increases product variety through intra-industry trade in differentiated products
    About 50% of DC trade is in differentiated goods.