Intraindustry Trade in Identical Products: a Portfolio Approach
AbstractIn the traditional model, intraindustry trade in an identical product is driven by the profit margin each firm perceives in the rival market on the basis of Cournot conjectures. The authors demonstrate that when markets are stochastic and potentially correlated, benefits from diversification create added incentives for cross--hauling for risk--averse Cournot duopolists. The portfolio motive for cross--hauling makes the unusual pattern of trade a theoretically more robust phenomenon than has been recognized in the traditional models. The benefits from diversification can raise producer welfare in the intraindustry trade equlibrium, unlike in the deterministic model. Copyright Blackwell Publishing Ltd. 2003
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 11 (2003)
Issue (Month): 1 (February)
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- W. Charles Sawyer & Richard Sprinkle, 2012. "The Role of Intra-industry Trade in the World Economy," Working Papers 201203, Texas Christian University, Department of Economics.
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