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Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation

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  • Brander, James A.
  • Spencer, Barbara J.

Abstract

This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. If trade occurs, Bertrand firms always differentiate their products more that Cournot firms. However, sufficiently high differentiation costs can prevent product differentiation. Trade in homogeneous products never takes place under Bertrand competition. Bertrand firms will either differentiate their products or will not export. Cournot firms, however, may trade in either homogeneous or differentiated products. Product differentiation can significantly increase the gains from trade under both Cournot and Bertrand oligopoly.

Suggested Citation

  • Brander, James A. & Spencer, Barbara J., 2015. "Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation," Research in Economics, Elsevier, vol. 69(2), pages 157-165.
  • Handle: RePEc:eee:reecon:v:69:y:2015:i:2:p:157-165
    DOI: 10.1016/j.rie.2015.02.007
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    Cited by:

    1. Boone, Jan & Žigić, Krešimir, 2015. "Trade policy in markets with collusion: The case of North–South R&D spillovers," Research in Economics, Elsevier, vol. 69(2), pages 224-237.
    2. Kawabata, Yasushi, 2015. "Endogenous formation of free trade agreements in vertically related markets," Research in Economics, Elsevier, vol. 69(2), pages 214-223.
    3. repec:cje:issued:v:50:y:2017:i:5:p:1414-1444 is not listed on IDEAS
    4. Peter Neary & Dermot Leahy, 2015. "When The Threat Is Stronger Than The Execution: Trade Liberalization And Welfare Under Oligopoly," Economics Series Working Papers 775, University of Oxford, Department of Economics.
    5. Keith Head & Barbara J. Spencer, 2017. "Oligopoly in international trade: Rise, fall and resurgence," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1414-1444, December.
    6. Conze, Maximilian & Kramm, Michael, 2017. "The different effect of consumer learning on incentives to differentiate in Cournot and Bertrand competition," Ruhr Economic Papers 666, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    Keywords

    Bertrand; Cournot; Product differentiation; Intra-industry trade; Gains from trade;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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