National oligopolies and economic geography

We replace monopolistic competition with national oligopolies in a model of “new economic geography”. There are many possible bifurcation diagrams, but unlike in monopolistic competition, the symmetric equilibrium is always stable for low trade costs. The antitrust policy, though identical in both countries, affects the geographical distribution of firms. In turn, migration attenuates the effectiveness of the antitrust policy in eliminating collusive behavior. For high trade costs, a toughening of the antitrust policy is likely to result in more agglomeration and may reduce world welfare. The antitrust policy is more likely to be welfare improving when market integration progresses.