THE ROLE OF FREE ENTRY IN AN OLIGOPOLISTIC HECKSCHER-OHLIN MODEL

Retaining the basic properties of the Heckscher-Ohlin (HO) trade model , namely, free entry and exit, fully integrated international commodit y markets, and the same number of sectors with that of factors, we dev elop a two-country model with Cournot oligopoly. In this economy, fact or price equalization and the standard HO theorem on comparative advan tage hold. Between two countries which are identical except for size, however, autarkic prices are different even though the level of trade is zero under the free-trade regime. Nevertheless, free trade reduces the oligopoly price, and increases welfare.