Comparative advantage with many goods: New treatment and results

This paper constitutes the very first treatment of the Shapley–Shubik (1977) market-game mechanism with a continuum of commodities. We develop an oligopolistic-competition model in which product prices are endogenously determined, via buyers’ and sellers’ strategic decisions, and we lay down and examine its mathematical structure. Taking agents’ market power into account, we restudy the Ricardian Law of Comparative Advantage in a many-commodity framework, and obtain a (new) result that is in line with what is perceived in real-world markets: when agents act strategically, they do not specialise based on comparative advantages. For a large class of utility functions, we prove the existence of equilibria at all of which trade is driven neither by absolute nor comparative advantages, but exclusively by strategic decision-making.