We explore the possibility of free trade between two countries, differentiated in terms of the market size and where each of them has a monopoly firm that produces a vertically differentiated good. The two monopoly firms are involved in intra-industry trade. At autarky, in any one country, only...

The answer to the question in the title is yes for the case of ad-valorem taxes, a foreign industry that produces a vertically differentiated good of higher quality, and costs that take the form of qualitydependent fixed costs for both the foreign and domestic firm. The domestic industry loses...