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Oligopoly in Segmented Markets

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  • Shmuel Ben-Zvi
  • Elhanan Helpman

Abstract

We propose a new solution concept for a game among oligopolists that simultaneously compete in several segmented markets. The motivation for this solution comes from international trade, but it also has applications in other areas. It is based on a three-stage extension of the two-stage Kreps-Scheinkman game. We show that two-way trade is not an equilibrium outcome and that there exist bounds on possible cross-market priced differentials that are defined by transport costs. Prices are the same when transport costs are zero. In fact, in the limiting case of zero transport costs the equilibrium coincides with a Cournot equilibrium in a single integrated market. In the presence of transport coats there nay exist multiple equilibria.

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File URL: http://www.nber.org/papers/w2665.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2665.

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Date of creation: Jul 1988
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Publication status: published as Monopolistic Competition and International Trade, MIT Press 1992 G.M. Grossman ed
Handle: RePEc:nbr:nberwo:2665

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  1. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers, Queen's University, Department of Economics 380, Queen's University, Department of Economics.
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