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Strategic Investment and Trade in an Oligopolistic Setting

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Ioana Veronica ALEXA & Simona Valeria TOMA & Daniela Ancuţa SARPE, 2013. "Strategic Investment and Trade in an Oligopolistic Setting," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 5-10.
  • Handle: RePEc:ddj:fseeai:y:2013:i:2:p:5-10
    as

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    References listed on IDEAS

    as
    1. Dermot Leahy & J. Peter Neary, 2010. "Oligopoly And Trade," Economics, Finance and Accounting Department Working Paper Series n215-10.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    2. Neary, J Peter, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 680-693, November.
    3. Eckel, Carsten & Iacovone, Leonardo & Javorcik, Beata & Neary, J. Peter, 2015. "Multi-product firms at home and away: Cost- versus quality-based competence," Journal of International Economics, Elsevier, vol. 95(2), pages 216-232.
    4. Egger, Hartmut & Etzel, Daniel, 2012. "The impact of trade on employment, welfare, and income distribution in unionized general oligopolistic equilibrium," European Economic Review, Elsevier, vol. 56(6), pages 1119-1135.
    5. Julio J. Rotemberg & Garth Saloner, 1989. "Tariffs vs Quotas with Implicit Collusion," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 237-244, May.
    6. 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.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    8. 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 837-847, November.
    9. 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.
    10. 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.
    11. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-258, March.
    12. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    International trade; Strategic investment; Oligopoly; Cournot competition;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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