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Reciprocal dumping with Bertrand competition

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Author Info
Friberg, Richard () (Dept. of Economics, Stockholm School of Economics)
Ganslandt, Mattias () (IUI)

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Abstract

This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that welfare is a U-shaped function in the transport cost as long as trade occurs in equilibrium. With a Cournot duopoly trade can reduce welfare compared to autarchy for any degree of product differentiation. Under Bertrand competition we show that trade may reduce welfare compared to autarchy, if firms produce sufficiently close substitutes and the autarchy equilibrium is sufficiently competitive. Otherwise it can not.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 592.

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Length: 20 pages
Date of creation: 23 Mar 2005
Date of revision:
Handle: RePEc:hhs:hastef:0592

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Related research
Keywords: Reciprocal dumping; intra-industry trade; oligopoly; product differentiation; transport costs;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Daniel A. Ackerberg & Marc Rysman, 2002. "Unobserved Product Differentiation in Discrete Choice Models: Estimating Price Elasticities and Welfare Effects," NBER Working Papers 8798, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February. [Downloadable!] (restricted)
    Other versions:
  4. Friberg, Richard & Ganslandt, Mattias, 2006. "An empirical assessment of the welfare effects of reciprocal dumping," Journal of International Economics, Elsevier, vol. 70(1), pages 1-24, September. [Downloadable!] (restricted)
  5. Steven Berry & James Levinsohn & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June. [Downloadable!] (restricted)
  6. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February. [Downloadable!] (restricted)
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  7. Christian Broda & David W. Weinstein, 2004. "Variety Growth and World Welfare," American Economic Review, American Economic Association, vol. 94(2), pages 139-144, May. [Downloadable!]
  8. Collie, David R & Roger Clarke, 2003. "Product Differentiation and the Gains from Trade under Bertrand Duopoly," Royal Economic Society Annual Conference 2003 47, Royal Economic Society. [Downloadable!]
    Other versions:
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