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Strategic Investment and Trade in an Oligopolistic Setting

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  • Ioana Veronica ALEXA

    ()
    (Dunarea de Jos University of Galati, Romania)

  • Simona Valeria TOMA

    ()
    (Dunarea de Jos University of Galati, Romania)

  • Daniela AncuÅ£a SARPE

    ()
    (Dunarea de Jos University of Galati, Romania)

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    Abstract

    This paper analyses the international trade dynamics between two countries as a two-player, non-zero sum, cooperative game. The reason behind this type of approach is that we consider game theory as an important instrument for the analysis of international trade dynamics. The model that we develop in this paper follows the multi-sectorial general-equilibrium model of oligopoly and trade. We will analyze the case where trade takes place because of oligopolistic interaction and comparative advantage. Even though we follow the general framework, the main departure from the existing models on the subject is that in our model both labor and capital are used in production and that the firms have a choice between specializing in labor or capital-intensive goods by choosing weather or not to invest in capital and therefore use two factors of production. As required by a general equilibrium model, we will try to establish an equilibrium on both labor and capital markets and we will try to determine the labor and capital intensity in both countries as well as the equilibrium level of the wage and rental rate.

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    Bibliographic Info

    Article provided by "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration in its journal Economics and Applied Informatics.

    Volume (Year): (2013)
    Issue (Month): 2 ()
    Pages: 5-10

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    Handle: RePEc:ddj:fseeai:y:2013:i:2:p:5-10

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    Postal: No. 59-61, Nicolae Balcescu Street, Postal Code 800008, Galati
    Phone: (0040) 336.130.242
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    Related research

    Keywords: International trade; Strategic investment; Oligopoly; Cournot competition;

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    References

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    1. Eckel, Carsten & Neary, J. P., 2010. "Multi-product firms and flexible manufacturing in the global economy," Munich Reprints in Economics 20525, University of Munich, Department of Economics.
    2. Peter Neary & Joe Tharakan, 2011. "International Trade with Endogenous Mode of Competition in General Equilibrium," CREPP Working Papers 1111, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
    3. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
    4. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    5. Beata Javorcik & Peter Neary & Carsten Eckel and Leonardo Iacovone, 2010. "Multi-product firms at home and away: Cost- versus quality-based competence," Economics Series Working Papers 522, University of Oxford, Department of Economics.
    6. Neary, J Peter, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 680-93, November.
    7. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
    8. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
    9. Dermot Leahy & J. Peter Neary, 2010. "Oligopoly And Trade," Economics, Finance and Accounting Department Working Paper Series n215-10.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    10. Julio J. Rotemberg & Garth Saloner, 1989. "Tariffs vs Quotas with Implicit Collusion," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 237-44, May.
    11. Fung, K C, 1992. "Economic Integration as Competitive Discipline," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 837-47, November.
    12. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    13. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
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