International Trade and Industrial Organization: Introduction

Abstract

UNITED STATES economists may deserve credit for having promoted the statistical investigation of hypotheses about industrial organization. But theyand their less numerate forebears-must shoulder blame for our habitual acceptance of 'the nation' as the presumed geographic span of the market. The power of international competition to shape market structure and performance seemed modest in the giant US economy. The analytically messy problem of drawing appropriate market boundaries has not attracted the theorists. So one can readily understand the neglect of international forces prevalent in industrial organization research until the past decade (for a literature survey, see [3]). That neglect has become an increasing embarrassment, of course, as international links among national product markets have grown and revealed their influence to the naked eye. The unholy alliance between the tariff collector and the local monopolist is a long-standing one. Since World War II tariff barriers have been reduced substantially, and international trade (especially in manufactures) has grown more rapidly than national production in the industrial countries. The European Community and lesser preferential arrangements have taken bold steps toward erasing the economic barriers of national frontiers. The pervasive expansion of intraindustry trade shows that much of the enlargement of international commerce takes the form of increasingly fine division of labor within industries, rather than the sectoral specialization assumed in classical discussions of comparative advantage-this to the discomfiture of international-trade economists weaned on models of pure competition. Perhaps knowledge of the structure of international trade can be surmounted only if an industrial-organization economist is included in the climbing party! One might hope that internationalizing the field of industrial organization would greatly simplify its conceptual structure. If buyers and sellers the world around comprise 'the market' and the individual nation's transactors are a small fraction of the total, then the national market becomes a pricetaking subsector of the world market. Measures of national seller and buyer concentration lose their economic meaning, and enthusiasts for competition policy can confine their efforts to the occasional noisy demonstration at the front door of the tariff-setting authority. Alas, theoretical and empirical research have shown that the recognition of international influences on competition in the national market makes the subject more rather than less