Globalisation under oligopolistic competition: policy implications from 'strategic trade' model

Abstract

The paper modifies the model of 'strategic trade' formulated by Krugman. When the two advanced economies compete for market shares, being equally developed technologically each economy establishes an oligopoly and there is no net transfer of rents. When a less technologically developed 'emerging economy' is added, a one-way transfer of rents from the 'emerging economy' to the two advanced economies may be the outcome. If ownership control in the emerging economy is missing, a loss of market shares to the advanced economies may be accompanied by takeovers of their domestic companies. The paper argues that the most effective way for 'emerging economies' to benefit from the dominated by oligopoly world trade is for them to establish their own oligopolies. Among 'transition economies', with an active state China chose such a strategy and already has created numerous oligopolies with a global presence. Eastern Europe adopted hands-off approach with a passive state. The region did not build an effective pool of national oligopolies to ensure a positive or at least a zero balance of rents. This approach does not preclude fast growth, the case in point being Poland (and Slovenia).