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Modern firm based theory: New trade theory by Elhanen Helpman, Paul…
Modern firm based theory: New trade theory by Elhanen Helpman, Paul Krugman & Kelvin Lancaster: P190-191
Analysis of incorporating the impact of economies of scale on trade of differentiated goods
Predicts that intraindustry trade will be a common place
MNC's within the same industry will play 'cat & mouse' games with one another on a global basis as they attempt to expand sales and capture scales of economies
For example, manufacturers may want to keep their competitive advantage through investing heavily in R&D for their products
How can they capture economies of scale?
Intellectual property rights
: :smiley:
Owning the rights to a brand name can give a competitive advantage as prestigious names, like Ralph Lauren, can charge high prices
Economies of scope
:smiley:
Occurs when a number of different products sales increase
Low average cost = competitive advantage
Investing R&D
:smiley:
Developing new technology, for example, adds value to consumers
Makes it difficult for new entrants into the market
National competitiveness & trade flows are determined by the R&D expenditures
Microsoft spend billions in R&D on their products and services to keep their monopoly power
R&D can be used to change products in response to quick market feedback from domestic market
This can be then used abroad
exploiting the learn by doing curve
:smiley:
Over a certain period of time, production costs decrease as people become more productive in what they are making
Some companies opted for cutting prices to increase sales
Results in increase in experience of manufacturing
