Question

What is new trade theory, what are it's competitive advantages and why does it make America dominant in the airline industry.

Answer 1

The New trade theory is an economic theory that explains the trade patterns of the world. It explains why goods and services produce in one country and end with the comparable goods of another country — this theory developed in the 1970's. The theory explains both economies of scale and the network effects that generally occurs in key industries in the country. The competitive advantage of this theory is that, if one country specializes in a particular industry then that industry gain economies of scale and other network effects. Also, the industry is dominant when they enter early in the market. It means that new entrants can learn enough economies of scale and can't compete with the incumbents. So, the global industries don’t have enough competition in the market and face monopolistic competition in the market. The monopolistic competition is the central element of the new trade theory and competes with quality and branding.

The airline industry in the USA is the best example of the application of new trade theory. It exports and imports of jet items and has substantial economies of scale. And also have the world demand for the product.