Chapter 8
Firms in the Global Economy: Export Decisions, Outsourcing, and
Multinational Enterpris
Chapter Organization
The Theory of Imperfect Competition
Monopoly: A Brief Review
Monopolistic Competition
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Monopolistic Competition and Trade
The Effects of Incread Market Size
Gains from an Integrated Market: A Numerical Example
The Significance of Intra-Industry Trade组合图形的面积
Ca Study: The Emergence of the Turkish Automotives Industry
Firm Respons to Trade: Winners, Lors, and Industry Performance
Performance Differences across Producers
The Effects of Incread Market Size
Trade Costs and Export Decisions
Dumping
Ca Study: Antidumping as Protectionism
Multinationals and Outsourcing
Ca Study: Patterns of Foreign Direct Investment Flows Around the World
The Firm’s Decision Regarding Foreign Direct Investment
Outsourcing
Ca Study: Shipping Jobs Overas? Offshoring and Unemployment in the United States Conquences of Multinationals and Foreign Outsourcing
Summary
聊天话题大全APPENDIX TO CHAPTER 8: Determining Marginal Revenue内存卡格式化失败
© 2015 Pearson Education Limited
Chapter Overview
In previous chapters, trade among nations was motivated by their differences in factor productivity or relative factor endowments. The type of trade that occurred, for example of food for manufactures, is bad on comparative advantage and is called interindustry trade. This chapter introduces trade bad on internal economies of scale in production. Such trade in similar productions is called intraindustry trade and describes, for example, the trading of one type of manufactured good for another type of manufactured good. It is shown that trade can occur when there are no technological or endowment differences but when there are economies of scale or increasing returns in production.
Economies of scale can either take the form of (1) external economies, whereby the cost per unit depends on the size of the industry but not necessarily on the size of the firm, or as (2) internal economies, whereby the production cost per unit of output depends on the size of the individual firm but not necessarily on the size of the industry. Whereas Chapter 7 looked at external economies of scale, this chapter focus on internal economies of scale. Internal economies of scale give ri to imperfectly competitive markets, unlike the perfectly competitive market structures that were assumed to exist in earlier chapters. This motivates the review of models of imperfect competition, including monopoly and monopolistic competition. The instructor should spend some time making certain that students understand the equilibrium concepts of the models becau they are important for the justification of intraindustry trade.
In markets described by monopolistic competition, there are a number of firms in an industry, each of which produces a differentiated product. Demand for its good depends on the number of other similar products available and their prices. This type of model is uful for illustrating that trade improves the trade-off between scale and variety available to a country. In an industry described by monopolistic competition, a larger market—such as that which aris through international trade—lowers average price (by increasing production and lowering average costs) and makes a greater ra
nge of goods available for consumption. Although an integrated market also supports the existence of a larger number of firms in an industry, the model prented in the text does not make predictions about where the industries will be located.
It is also interesting to compare the distributional effects of trade when motivated by comparative advantage with tho when trade is motivated by increasing returns to scale in production. When countries are similar in their factor endowments, and when scale economies and product differentiation are important, the income distributional effects of trade will be small. You should make clear to the students the sharp contrast between the predictions of the models of monopolistic competition and the specific factors and Heckscher-Ohlin theories of international trade. Without clarification, some students may find the contrasting predictions
of the models confusing. The chapter prents the ca study of the 1964 North American Auto Pact, which lowered trade barriers in trade of automotive products between Canada and the United States. Canadian auto plants declined in number, but the size of the remaining plants incread significantly as they were producing for both the U.S. and Canadian markets. The net result was an increa in exports of automotive products from Canada to the United States, rising from $16 million in 1962 to $2.4 billion in 1968. A similar example of trade with internal economies benefiting smaller
countries was en with NAFTA, as Mexican firms gained from freer access to the much larger American market.
Another important issue related to imperfectly competitive markets is the practice of price discrimination, namely charging different customers different prices. One particularly controversial form of price discrimination is dumping, whereby a firm charges lower prices for exported goods than for goods sold domestically. This can occur only when domestic and foreign markets are gmented. The economics
of dumping are illustrated in the text using the example of an industry that contains a single monopolistic firm lling in the domestic and foreign markets. While there is no good economic justification for the view that dumping is harmful, it is often viewed as an unfair trade practice.
The chapter concludes with a discussion of foreign direct investment (FDI). FDI may be horizontal or vertical. With horizontal FDI, a firm replicates its production process in multiple locations. With vertical FDI,
© 2015 Pearson Education Limited
Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterpris 41 a firm breaks up its production chain across multiple locations. The decision by a multinational to engage in FDI is driven by a proximity-concentration trade-off. Internal economies of scale give an advantage to locating all production in one location. However, trade costs increa the cost of exporting from a single location. Thus, FDI is more likely when trade costs are high and internal economies of scale are low. Finally, a multinational must decide whether to engage in direct foreign production through a foreign affiliate or to engage in outsourcing. The former is more likely when the multinational has a proprietary technology that it is concerned about losing control over or if foreign firms cannot produce as efficiently as direct production through a foreign affiliate. A ca study examines the impact of offshoring (the relocation of parts of the production chain abroad) on employment in the United States. The study finds that offshoring has incread for U.S. firms, particularly of manufacturing jobs. However, the productivity gains achieved by offshoring have actually led to an increa in the overall level of U.S. employment. It is important to note, however, that the new jobs created by offshoring may not be filled by tho people who lost their jobs due to offshoring.
Answers to Textbook Problems
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1. This situation usually occurs in an oligopoly, where the market is dominated by few llers and the
companies have no real interest in competing with each other. Telecommunication market is a good example.
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2. To solve this problem, we need to first find the equilibrium number of firms in the three country
integrated market by tting average cost equal to price across all markets. We do this by first noting that average cost can be written as AC = (nF/S) + c and price can be written as P = c + (1/bn), where n is the number of firms, F is the fixed cost, S is the market size, c is the marginal cost, and b is a constant. Setting the average cost equal to price yields the following expression:
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(nF/S) +c=c+ (1/bn)
n2= (1/b) ⨯S/F
n= [(1/b) ⨯S/F]1/2
The numerical problem in the chapter gives us the following values:
F= 750,000,000
S Home= 900,000, S Foreign= 1,600,000, S Country 3= 3,750,000
c= 5,000
b= 1/30,000
Now compute the total market
size as the sum of the market sizes in Home, Foreign, and Country 3:
姹紫嫣红S=S Home+S Foreign+S Country 3= 900,000 + 1,600,000 + 3,750,000 = 6,250,000
Now plug in the values to solve for n:
n= [30,000 ⨯ 6,250,000/750,000,000]1/2= 15.8
As we cannot have 0.8 firms enter into a market, we know that there will only be 15 firms that enter this market (the 16th firm knows that it cannot earn positive profits and will not enter). Once we know n, then solving for Q and P is straightforward:
Q=S/n= 6,250,000/15 = 416,667
P=c+ (1/bn) = 5,000 + 30,000/15 = 7,000
This price is lower than that charged when there were only two countries in the market.
3. We are given the following information (with all dollar amounts in thousands):
F= 5,000,000,000
