To this point we have assumed that all of the relevant markets are competitive. In this and the following two chapters we shall relax this assumption and turn our attention to cases in which firms possess some market power. Such cases should be of considerable interest to any student of protectionist regimes, many of the more notable examples of protection being industries such as steel, automobiles and electronic goods, in which a small number of firms produce under conditions of economies of scale. Even agricultural trade, apparently closest to the competitive model, is frequently conducted through government marketing boards and international trading companies and is therefore likely to involve some elements of imperfect competition. A further aspect of trade which has received increasing attention in recent years is intra-industry trade associated with product differentiation – such trade is frequently non-competitive. Given the range of cases to be considered, the extent of the recent literature in this area and the undeniable empirical importance of trade and protection in imperfectly competitive industries, we shall spend some time developing and exploring the models. In this chapter we shall deal with the simplest non-competitive market structure: monopoly. This leads naturally into the treatment of oligopoly in Chapter 6. The case of trade in differentiated products is considered in some detail in Chapter 7.

Throughout much of these three chapters we shall be analysing industries which are characterized by significant economies of scale. It can be argued that these are the most likely industries to exhibit non-competitive market structures.