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The Closed-Loop Effects Of Market Integration In A Dynamic Duopoly

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  • KENJI FUJIWARA
  • TSUYOSHI SHINOZAKI

Abstract

This paper develops a dynamic game model of reciprocal dumping to reconsider welfare effects of market integration, i.e. reductions in transport costs. We show that welfare under trade is unambiguously less than welfare under autarky for any level of transport costs, which is impossible in static models where trade is profitable if the transport cost is low enough. This is because the negative effect through closed-loop property of feedback strategies dominates the positive effects. Copyright 2010 The Authors. Journal compilation 2010 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Australian Economic Papers.

Volume (Year): 49 (2010)
Issue (Month): 1 (03)
Pages: 1-12

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Handle: RePEc:bla:ausecp:v:49:y:2010:i:1:p:1-12

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  1. Lahiri, Sajal & Ono, Yoshiyasu, 1995. "The Role of Free Entry in an Oligopolistic Heckscher-Ohlin Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 609-24, August.
  2. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  3. Kemp, Murray C & Long, Ngo Van, 1979. "The Under- Exploitation of Natural Resources: A Model with Overlapping Generations," The Economic Record, The Economic Society of Australia, vol. 55(150), pages 214-21, September.
  4. Benchekroun, Hassan, 2003. "Unilateral production restrictions in a dynamic duopoly," Journal of Economic Theory, Elsevier, vol. 111(2), pages 214-239, August.
  5. CORDELLA, Tito, 1992. "Patterns of trade and oligopoly equilibria: an example," CORE Discussion Papers 1992051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Kemp, M.C. & Wong, K-Y., 1990. "The Gains Form Trade When Markets Are Incomplete," Discussion Papers in Economics at the University of Washington 90-08, Department of Economics at the University of Washington.
  7. Newbery, David M G & Stiglitz, Joseph E, 1984. "Pareto Inferior Trade," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 1-12, January.
  8. Kemp, M.C. & Wong, K.Y., 1992. "Gains from Trade with Overlapping Generations," Working Papers 92-06, University of Washington, Department of Economics.
  9. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
  10. Murray C. Kemp & Koji Shimomura, 2001. "Gains From Trade in a Cournot-Nash General Equilibrium," The Japanese Economic Review, Japanese Economic Association, vol. 52(3), pages 284-302.
  11. Naito, Takumi & Zhao, Laixun, 2009. "Aging, transitional dynamics, and gains from trade," Journal of Economic Dynamics and Control, Elsevier, vol. 33(8), pages 1531-1542, August.
  12. Shy, Oz, 1988. "A general equilibrium model of pareto inferior trade," Journal of International Economics, Elsevier, vol. 25(1-2), pages 143-154, August.
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