Abstract
This study develops a model of monopolistic competition that captures the role of country-specific communications networks in determining the comparative advantages of countries. A communications network is characterized by (1) the existence of a large fixed cost for its construction; and (2) a public monopoly that employs average cost pricing. It is demonstrated that the size of a country, measured by the size of the country’s endowment of factors of production, determines its comparative advantage. A comparative advantage in the goods that require services provided by a communications network is held by the larger of two countries.
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