Gains from trade in an asymmetric Cournot world with trade costs

We compare free trade with autarky in a partial equilibrium model with asymmetric Cournot competition and linear demand and costs. While the existing literature can only guarantee under strong symmetry without trade costs that trade increases world output, consumer surplus and total welfare, we show that weaker conditions such as partial symmetry guarantee these global gains from trade in a n-country world with trade costs. We also show that free entry and exit ensure that every country gains from trade. Without any additional conditions, trade always increases a social objective function that values consumers twice as much as firms.