assume two countries, A and B, with sizes of domestic markets
300 million and 533 1 3 million units in annual sales,
respectively. In this market, firms compete by differentiating
their product, while the cost structure among the firms is largely
the same. In particular, let the fixed costs of firms be $5 × 109 ,
or five billion; marginal cost is $17,000 per unit; and the
coefficient of sensitivity b is 1/150.
(a) In the absence of international trade, determine equilibrium
price and number of firms in the market in each country.
(b) Now find the number of firms and equilibrium price in the
integrated market with costless crossboarder trade.
(c) Succinctly describe two distinct effects of market
integration on consumer welfare.