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Strategic Investment and Trade in an Oligopolistic Setting

  • Ioana Veronica ALEXA

    ()

    (Dunarea de Jos University of Galati, Romania)

  • Simona Valeria TOMA

    ()

    (Dunarea de Jos University of Galati, Romania)

  • Daniela Ancuţa SARPE

    ()

    (Dunarea de Jos University of Galati, Romania)

Registered author(s):

    This paper analyses the international trade dynamics between two countries as a two-player, non-zero sum, cooperative game. The reason behind this type of approach is that we consider game theory as an important instrument for the analysis of international trade dynamics. The model that we develop in this paper follows the multi-sectorial general-equilibrium model of oligopoly and trade. We will analyze the case where trade takes place because of oligopolistic interaction and comparative advantage. Even though we follow the general framework, the main departure from the existing models on the subject is that in our model both labor and capital are used in production and that the firms have a choice between specializing in labor or capital-intensive goods by choosing weather or not to invest in capital and therefore use two factors of production. As required by a general equilibrium model, we will try to establish an equilibrium on both labor and capital markets and we will try to determine the labor and capital intensity in both countries as well as the equilibrium level of the wage and rental rate.

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    Article provided by "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration in its journal Economics and Applied Informatics.

    Volume (Year): (2013)
    Issue (Month): 2 ()
    Pages: 5-10

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    Handle: RePEc:ddj:fseeai:y:2013:i:2:p:5-10
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    1. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    2. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
    3. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
    4. Beata Javorcik & Peter Neary & Carsten Eckel and Leonardo Iacovone, 2010. "Multi-product firms at home and away: Cost- versus quality-based competence," Economics Series Working Papers 522, University of Oxford, Department of Economics.
    5. J Peter Neary, 2001. "Foreign Competition and Wage Inequality," Working Papers 200102, School Of Economics, University College Dublin.
    6. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
    7. Hartmut Egger & Daniel Etzel, 2009. "The Impact of Trade on Employment, Welfare, and Income Distribution in Unionized General Oligopolistic Equilibrium," CESifo Working Paper Series 2895, CESifo Group Munich.
    8. Julio J. Rotemberg & Garth Saloner, 1989. "Tariffs vs Quotas with Implicit Collusion," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 237-44, May.
    9. Neary, J. Peter & Tharakan, Joe, 2012. "International trade with endogenous mode of competition in general equilibrium," Journal of International Economics, Elsevier, vol. 86(1), pages 118-132.
    10. Peter Neary & Dermot Leahy, 2010. "Oligopoly and Trade," Economics Series Working Papers 517, University of Oxford, Department of Economics.
    11. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
    12. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    13. Fung, K C, 1992. "Economic Integration as Competitive Discipline," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 837-47, November.
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