Working Paper Series
Bottled Water - A Case of Pointless Trade?
() and Mattias Ganslandt
Abstract: Two-way trade in (almost) homogenous products has
ambiguous welfare effects if entry is restricted. We examine Swedish
imports of bottled water to investigate whether transport cost losses from
trade outweigh the partial equilibrium gains from trade (stronger
competition and more brands to choose from). Using monthly data for all
brands sold in stores during 1998-2001 we estimate a structural model of
demand. Assuming one-shot Bertrand competition by multibrand firms, we can
use the estimated model to uncover marginal costs. We stimulate the effect
on consumer and producer surplus of banning imports, finding the banning
imports would decrease overall welfare. Expanded choice is the main benefit
of trade and disregarding his the net welfare effect of imports in this
market are approximately zero - the pro-competitive effect is of the same
size as the cost savings associated with replacing foreign, higher cost,
suppliers with domestic. Given our choice of market this suggests we should
not be overly concerned with the welfare effects of two-way trade in
consumer goods that are close to homogenous.
Keywords: Reciprocal dumping; Intra-Industry Trade; Nested Logit Models; (follow links to similar papers)
JEL-Codes: F12; F14; L13; L66; (follow links to similar papers)
31 pages, June 24, 2003
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