Abstract
The present paper uses a variant of the characteristics framework to develop a world demand structure based on broadly defined international taste differences. Moreover, firms face short-run ‘adjustments’ costs when changing product specifications. This constellation of assumptions traces very closely the ‘biological’ model of trade in similar products. The usual problem of the pattern of trade indeterminacy that emerges in models of intra-industry trade is resolved even in the case with zero transport costs. Finally, the paper analyzes the efects of taste-induced intra-industry trade on prices and product specifications.
Published Version
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