ABSTRACT
The potential gainfulness of free trade under conditions of perfect competition, with convex preferences and production sets, is well established; but to secure a proposition of comparable sweep under conditions of increasing returns and/or non-competitive markets has been considered to be impossible. Indeed it is plausible that in free-trade equilibrium some countries will ®nd themselves producing more of those goods subject to decreasing or only mildly increasing returns to scale, thus losing some of the bene®ts of increasing returns ± perhaps enough to outweigh the traditional gains from international exchange. Nevertheless, in the present paper we demonstrate the potential gainfulness of free trade in a Cournot±Nash general equilibrium in which the strategic variables of each agent are elements of his consumption and output vectors and of his vector of derived demands for factors of production, and from which increasing returns are not excluded.
