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Quotas and the Stability of Implicit Collusion

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  • Julio Rotemberg
  • Garth Saloner

Abstract

This paper shows that the imposition of an import quota by one country can lead to increased competitiveness; protection can reduce the price in the country that imposes the quota, the foreign country, or both. This emerges from a model in which the firms are assumed to sustain collusion by the threat of reversion to more competitive pricing. We consider both prices and quantities as the strategic variables and study competition both in the domestic and the foreign market taken individually, and in the two markets taken together.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 419.

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Date of creation: May 1986
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Handle: RePEc:mit:worpap:419

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Web page: http://econ-www.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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References

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  1. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  2. James A. Brander & Barbara J. Spencer, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Working Papers, Queen's University, Department of Economics 414, Queen's University, Department of Economics.
  3. Dixit, Avinash K & Kyle, Albert S, 1985. "The Use of Protection and Subsidies for Entry Promotion and Deterrence," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 139-52, March.
  4. Davidson, Carl, 1984. "Cartel stability and tariff policy," Journal of International Economics, Elsevier, Elsevier, vol. 17(3-4), pages 219-237, November.
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Cited by:
  1. Krugman, Paul R., 1989. "Industrial organization and international trade," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 20, pages 1179-1223 Elsevier.
  2. Raymond J. Deneckere & Dan Kovenock, 1988. "Capacity-Constrained Price Competition When Unit Costs Differ," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 861, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Steven Globerman, 1990. "Trade liberalization and competitive behavior: A note assessing the evidence and the public policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 9(1), pages 80-88.

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