TY  - JOUR
AU  - Balistreri,Edward J.
AU  - Markusen,James R.
TI  - Sub-national Differentiation and the Role of the Firm in Optimal International Pricing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13130
PY  - 2007
Y2  - May 2007
UR  - http://www.nber.org/papers/w13130
L1  - http://www.nber.org/papers/w13130.pdf
N1  - Author contact info:
Edward J. Balistreri
Division of Economics and Business
Colorado School of Mines
Golden, CO 80401-1887
E-Mail: ebalistr@mines.edu

James R. Markusen
Department of Economics
University of Colorado
Boulder, CO 80309-0256
Tel: 303/492-0748
Fax: 303/492-8960
E-Mail: james.markusen@colorado.edu
AB  - We illuminate the relationship between optimal firm pricing and optimal trade policy by exploring a generalized model that accommodates product differentiation at both the national and sub-national (firm) levels.  We assume monopolistic competition in the differentiated products at the sub-national level.  When the national and sub-national substitution elasticities are similar we find little opportunity for small countries to improve their terms of trade through trade distortions, because firms play an important preemptive role in optimally pricing unique varieties.  We contrast this with standard applications of perfect-competition Armington models, which exhibit high optimal tariffs--even for relatively small countries.
ER  -