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Optimal Retaliation in International Commodity Markets


  • Vanzetti, David
  • Kennedy, John O.S.


Retaliation and other strategic trade policies can be readily observed in world commodity markets. Strategic behaviour can be analysed with game-theoretic models. Game theory is used to assess the effects of retaliation, given that traders assume that rivals will respond to any policy change. Estimates of expected responses are obtained for each trading bloc, and are included in regional welfare functions. These are used to derive a market-cleaning global equilibrium in which domestic prices, trade flow and welfare distribution in each region are determined. Market power among importers relative to exporters determines the effect of changes in expectations of retaliation on optimal trade policies and trade flows. The analysis is applied to a twenty-one region linear wheat trade model.

Suggested Citation

  • Vanzetti, David & Kennedy, John O.S., 1989. "Optimal Retaliation in International Commodity Markets," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 57, December.
  • Handle: RePEc:ags:remaae:12443

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    References listed on IDEAS

    1. Carl H. Nelson & Bruce A. McCarl, 1984. "Including Imperfect Competition in Spatial Equilibrium Models," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 32(1), pages 55-70, March.
    2. Chris M. Alaouze & A. S. Watson & N. H. Sturgess, 1978. "Oligopoly Pricing in the World Wheat Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(2), pages 173-185.
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    7. Morton I. Kamien & Nancy L. Schwartz, 1983. "Conjectural Variations," Canadian Journal of Economics, Canadian Economics Association, vol. 16(2), pages 191-211, May.
    8. David Vanzetti & John Kennedy, 1988. "Endogenous Price Policies and International Wheat Prices: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(3), pages 743-746.
    9. Batra, Raveendra N. & Seth, Avinash C., 1977. "Unemployment, tariffs and the theory of international trade," Journal of International Economics, Elsevier, vol. 7(3), pages 295-306, August.
    10. Thursby, Marie & Jensen, Richard, 1983. "A conjectural variation approach to strategic tariff equilibria," Journal of International Economics, Elsevier, vol. 14(1-2), pages 145-161, February.
    11. Gardner, Bruce L., 1988. "Export Policy, Deficiency Payments, and a Consumption Tax," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 1.
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    13. Edward Tower, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 623-630.
    14. Rodriguez, Carlos Alfredo, 1974. "The non-equivalence of tariffs and quotas under retaliation," Journal of International Economics, Elsevier, vol. 4(3), pages 295-298, August.
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    Cited by:

    1. D. MacLaren, 1991. "Agricultural Trade Policy Analysis And International Trade Theory: A Review Of Recent Developments," Journal of Agricultural Economics, Wiley Blackwell, vol. 42(3), pages 250-297.

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