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International Trade, Differentiated Goods and Strategic Asymmetry

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We scrutinize international trade arising from oligopolistic rivalry (reciprocal dumping) in a model where the goods are horizontally differentiated and where otherwise symmetric firms located in different regions adopt asymmetric strategies – one competing in prices and the other competing in quantities. Uni-directional and intra-industry trade appear endogenously in our framework. We show that as trade costs decline the equilibrium outcome will transition from autarky through a region of uni-directional trade, before intra-industry trade ultimately arises. In the uni-directional trade region, potential market entry by the rival has an impact on firm behavior even though the rival is not exporting. The gains from trade are asymmetric in general, due to firms' asymmetric strategies, and sufficient product differentiation is required for trade to welfare dominate autarky especially with one of the trade partners adopting aggressive strategic behavior even when trade is costless.

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  • John Gilbert & Onur A. Koska & Reza Oladi, 2020. "International Trade, Differentiated Goods and Strategic Asymmetry," Working Papers in Economics 20/06, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:20/06
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    Cited by:

    1. John Gilbert & Onur A. Koska & Reza Oladi, 2020. "Product Quality and Strategic Asymmetry in International Trade," Working Papers in Economics 20/05, University of Canterbury, Department of Economics and Finance.
    2. John Gilbert & Onur A. Koska & Reza Oladi, 2020. "International Trade, Upstream Market Power, and Endogenous Mode of Downstream Competition," Working Papers in Economics 20/22, University of Canterbury, Department of Economics and Finance.
    3. Ki‐Dong Lee & Kangsik Choi, 2024. "Uniform versus discriminatory tariffs when competition mode is endogenous," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 95-120, January.
    4. Gilbert, John & Koska, Onur A. & Oladi, Reza, 2022. "The scope for strategic asymmetry under international rivalry," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 464-468.
    5. John Gilbert & Onur A. Koska & Reza Oladi, 2023. "Foreign market entry, upstream market power, and endogenous mode of downstream competition," Review of International Economics, Wiley Blackwell, vol. 31(1), pages 341-362, February.

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    More about this item

    Keywords

    Intra-industry trade; product differentiation; gains from trade; asymmetric strategies;
    All these keywords.

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook

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