Welfare Implications of Price Stabilization with Monopolistic Trade
1989
Wong, Chung Ming
The welfare effects of domestic and international price stabilization are examined and then compared, employing a two‐country model where one country exercises market power through continuous optimal trade restriction while the other behaves competitively. The two types of stabilization have quite different implications on the distribution of welfare between and within countries. The country exercising market power gains from domestic price stabilization regardless of the source of instability, but the government and private producers and consumers are affected differently. The country facing trade restriction can exercise some countervailing power by stabilizing international price fluctuations resulting from internal disturbances.
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