The authors argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs. They introduce sunk costs into one such model calibrated with...

Using the Hotelling approach to product differentiation, this article derives the equilibrium product configurations and prices when two firms enter and sell in two interdependent markets separated by barriers to trade. It shows that product imitation and no trade as well as product...