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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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number
638.
Length: 20 pages Date of creation: 16 Mar 2005 Date of revision: Handle: RePEc:hhs:iuiwop:0638
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