Kelvin Lancaster

Intra-industry trade under perfect monopolistic competition

Abstract This paper applies the analysis of perfect monopolistic competition, developed earlier by the author, to the problem of intra-industry trade. It is shown that a high volume of intra-industry trade can be expected even between economies which are identical in all respects and thus between which no trade would be predicted on the basis of comparative advantage. It is shown that similar economies may generate more mutual trade than dissimilar ones, and that tariffs may sometimes increase intra-industry trade.

The ‘product variety’ case for protection

Abstract The paper shows the existence of a case for protection in a small open economy in which there is preference diversity and potential product differentation with scale economies. The optimal tariff gives partial protection only, is a first-best solution, and must be sustained. The welfare loss that is corrected by the tariff is that due to a sub-optimal degree of product variety, arising from market failure linked to economies of scale.

Markets and Product Variety Management

Does product variety need managing? Even a person skeptical of efficient market theories and other articles of faith in the perfection of markets, will find himself asking two questions when he contemplates this question: If there is too much or too little product variety, why isn’t the market adjusting it? And if the market is tolerating it, in what sense is there really a mismatch? The main purpose of this paper is to answer these two questions, with special emphasis on the role of incomplete information.

Information and Product Differentiation

In the uncomplicated world of the idealized competitive economy, there are really only two types of information that the consumer is presumed to need in order to make all his decisions—information as to the prices of goods and information as to the timing of receipts and payments. Less than full information on timing has long been accepted and forms one of the foundations of monetary theory. But informational deficiencies as to prices were long ignored, and the existence of uniform prices—for which there are no information problems—was a cornerstone of competitive market theory.

MAYBEE'S “SIGN SOLVABILITY”

Publisher Summary This chapter discusses Maybees sign solvability. The Lancaster Original Standard Form (LOSF) form is a triangular square matrix with positive signs above the diagonal and a negative diagonal, augmented by a final column of positive entries. All square matrices, for which all paths are positive and in which there are no positive cycles of dimension greater than one can be put in form M2 by permissible permutations and sign changes. The original LOSF is both necessary and sufficient for sign solvability if h ≪ 0, but the general Lancaster general standard form is not the most general form as it is sufficient, but not necessary, for sign solvability in cases where there are no columns without zeros.