We develop a two-factor, two-sector trade model of monopolistic competition with variable elasticity of substitution. Firm prot and rm size may increase or decrease with market integration depending on the degree of asymmetry between countries. The country in which capital is relatively abundant is a net exporter of the manufactured good, while both rms' size and prots are lower in this country than in the country where capital is relatively scarce. By contrast, the pricing policy adopted by

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... does not depend on capital endowment and country asymmetry. It is determined by the nature of preferences: when demand elasticity increases (decreases) with consumption, rms practice dumping (reverse-dumping). • We study a two-factor, two-sector trade model, allowing variable markups. • Price policy and markups depend on increasing or decreasing demand elasticity. * The authors would like to thank John Morrow and Dao-Zhi Zeng for their helpful comments. We also thank Philipp Ushchev for his kind assistance in preparation of the manuscript at the last stage. We specially thank Jacques-François Thisse for a series of valuable suggestions and comments. This study was carried out within The (S. Kokovin). 1 • Dumping (reverse dumping) is observed with increasing (decreasing) demand elasticity. • We examine capital price and rm size behavior under globalization. • Asymmetries in capital endowment and population aect capital price and rm size.