Industrial Behaviour, the Technology of Demand, and the Pattern of International Trade between Identical Countries

The aim of this paper is to clarify three issues relating to the empirical investigation of prices and import penetration when marginal costs are not increasing. The first is to demonstrate explicitly the simultaneous determination of industrial prices and import penetration. Second, to examine how oligopoly and/or product differentiation may lead to international trade between identical countries. Third, to emphasise the importance of the technology of demand when trying to explain price and trade. The technology of production is often mentioned in this context, yet the technology of demand, by which is meant the characterisation of the taste of consumers, is usually ignored but is shown to be of some importance.