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Piecemeal Oligopoly, Exchange Rate Uncertainty, and Trade Policy


  • Fernando Mesa


RESUMEN:Este artículo analiza el efecto sistemático de la volatilidad de la tasa de cambio, cuando un gobierno local debe evaluar políticas comerciales estratégicas lineales y cuadráticas. Este ejercicio se realiza para modelosde mercado Cournot y Bertran. El modelo prueba que tanto el esquema lineal como el cuadrático tienen el mismo efecto sobre el bienestar social de los paises, y que la volatilidad de la tasa de cambio doméstica lleva a los gobiernos a reducir los subsidios a las exportaciones o bajan los impuestos a las exportaciones, de acuerdo a la variable estratégica elegida por las firmas. La tasa de cambio extrangera tiene diferentes efectos dependiendo de si las firmas producen bajos rendimientos a escalas constantes o decrecientes.ABSTRACT:This paper examines the systematic effect of the exchange rate volatility, when a local government has to evaluate linear and quadratic strategic trade policies. The exercise is realized for both Cournot and Bertrand markets fashions. The model proves that the linear or quadratic scheme have the same effect on the countries´ social welfare, and that the volatility of the domestic exchange rate leads governments to reduce export subsidies or to cutexport taxes, according to the strategic variable chosen by firms. The foreignexchange rate volatility has different effects if firms produce under constantreturn or decreasing return of scale.

Suggested Citation

  • Fernando Mesa, 2009. "Piecemeal Oligopoly, Exchange Rate Uncertainty, and Trade Policy," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, November.
  • Handle: RePEc:col:000151:008799

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    References listed on IDEAS

    1. Laussel, Didier, 1992. "Strategic Commercial Policy Revisited: A Supply-Function Equilibrium Model," American Economic Review, American Economic Association, vol. 82(1), pages 84-99, March.
    2. Kala Krishna & Kathleen Hogan & Phillip Swagel, 1994. "The Nonoptimality of Optimal Trade Policies: The U.S. Automobile Industry Revisited, 1979-1985," NBER Chapters,in: Empirical Studies of Strategic Trade Policy, pages 11-40 National Bureau of Economic Research, Inc.
    3. Viaene, Jean-Marie & de Vries, Casper G., 1992. "International trade and exchange rate volatility," European Economic Review, Elsevier, vol. 36(6), pages 1311-1321, August.
    4. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    5. Caglayan, Mustafa, 2000. "Uncertainty Resolution and Strategic Trade Policy in Oligopolistic Industries," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 311-318, May.
    6. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
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    More about this item


    Comercio; Estructuras de Mercado y de Precios; Estrategia de Firma; Información e Incertidumbre.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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