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Intraindustry Trade in Identical Products: a Portfolio Approach

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  • Mahmudul Anam
  • Shin–Hwan Chiang

Abstract

In the traditional model, intraindustry trade in an identical product is driven by the profit margin each firm perceives in the rival market on the basis of Cournot conjectures. The authors demonstrate that when markets are stochastic and potentially correlated, benefits from diversification create added incentives for cross–hauling for risk–averse Cournot duopolists. The portfolio motive for cross–hauling makes the unusual pattern of trade a theoretically more robust phenomenon than has been recognized in the traditional models. The benefits from diversification can raise producer welfare in the intraindustry trade equlibrium, unlike in the deterministic model.

Suggested Citation

  • Mahmudul Anam & Shin–Hwan Chiang, 2003. "Intraindustry Trade in Identical Products: a Portfolio Approach," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 90-100, February.
    • Handle: RePEc:bla:reviec:v:11:y:2003:i:1:p:90-100
    DOI: 10.1111/1467-9396.00370
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    Cited by:

    1. W. Charles Sawyer & Richard Sprinkle, 2012. "The Role of Intra-industry Trade in the World Economy," Working Papers 201203, Texas Christian University, Department of Economics.
    2. Martin Cincibuch & Jiří Podpiera, 2006. "Beyond Balassa–Samuelson: Real appreciation in tradables in transition countries1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(3), pages 547-573, July.
    3. Martin Cincibuch & Jiri Podpiera, 2004. "Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries," Working Papers 2004/09, Czech National Bank.

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