TWO AND A HALF THEORIES OF TRADE

This paper discusses the place of oligopoly in international trade theory, and ar-gues that it is unsatisfactory to ignore …rms altogether, as in perfectly competitivemodels, or to view large …firms as more productive clones of small ones, as in monop-olistically competitive models. Doing either fails to account for the granularityin the size distribution of …rms and for the dominance of large …rms in exporting.The paper outlines three ways of developing more convincing models of oligopoly,which allow for free entry but do not lose sight of the grains in granularity:heterogeneous industries, natural oligopoly, and superstar …firms....