Trade Liberalization and Distribution

We analyze how the organization of imports of agricultural products due to trade liberalization affects domestic production, profits and welfare. A local wholesaler owned by local farmers (cooperative) competes with an independent wholesaler, and both may distribute their products through independent retailers. The cooperative has exclusive rights for distributing local products, but both firms may import competing products from a world market. In equilibrium the cooperative refrain from importing and the private wholesaler imports exclusively, leading to a suboptimal welfare result compared to the situation where both firm import the foreign good. As expected, trade liberalization always improves welfare compared to autarky, but once trade is taking place further trade liberalization may sometimes hurt welfare.