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Welfare implications of free trade agreements under Bertrand and Cournot competition with product differentiation

Author

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  • Yasushi Kawabata
  • Yasuhiro Takarada

Abstract

This study examines the effects of free trade agreements (FTAs) on the welfare of both member and nonmember countries and the incentives for multilateral free trade in a three-country model of Bertrand and Cournot competition in differentiated oligopolies. First, we demonstrate that an FTA increases the welfare of all member and nonmember countries in both Bertrand and Cournot competition with product differentiation. Second, we show that if products are nearly perfect substitutes, an FTA may hamper the incentive of a nonmember country to support multilateral trade liberalization with Bertrand competition, which sharply contrasts with the case of Cournot competition.

Suggested Citation

  • Yasushi Kawabata & Yasuhiro Takarada, 2015. "Welfare implications of free trade agreements under Bertrand and Cournot competition with product differentiation," International Economics, CEPII research center, issue 142, pages 4-14.
    • Handle: RePEc:cii:cepiie:2015-q2-142-1
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    Citations

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    Cited by:

    1. Kawabata, Yasushi, 2015. "Endogenous formation of free trade agreements in vertically related markets," Research in Economics, Elsevier, vol. 69(2), pages 214-223.
    2. Yasushi Kawabata & Yasuhiro Takarada, 2023. "Greening Trade Agreements Through Harmonization of Environmental Regulations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(1), pages 57-81, October.
    3. Junhai Ma & Weiya Di & Hao Ren, 2017. "Complexity Dynamic Character Analysis of Retailers Based on the Share of Stochastic Demand and Service," Complexity, Hindawi, vol. 2017, pages 1-12, September.

    More about this item

    Keywords

    Free trade agreement; Bertrand competition; Cournot competition; Product differentiation;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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