Review of International Economics, Vol. 24, No. 4
This paper presents a new model of oligopoly in general equilibrium and explores its implications for positive and normative aspects of international trade. Assuming “continuum–Pollak” preferences, the model allows for consistent aggregation over a continuum of sectors, in each of which a small number of home and foreign firms engage in Cournot competition. I show how competitive advantage interacts with comparative advantage to determine resource allocation and, specializing to continuum–quadratic preferences, I explore the model's implications for the gains from trade, for the distribution of income between wages and profits, and for production and trade patterns in a two-country world.