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International Capacity Choice and National Market Games

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  • Venables, Anthony J

Abstract

A series of models are developed in which international trade is modelled as a two-stage game between firms in two countries. At the first stage firms choose their productive capacity. At the second stage different types of market game are played. The most interesting case is that in which firms play a separate price game in each national market, given their worldwide capacity levels. It is established that (i) firms use capacity strategically, in order to manipulate the distribution of rivals' output between markets; (ii) the volume of intra-industry trade is intermediate between the two cases most extensively studied in the trade literature (integrated- and segmented-market Cournot equilibria); and (iii) countries gain from small import tariffs and export subsidies, but these gains are less than in the case of segmented markets and a Cournot equilibrium.

Suggested Citation

  • Venables, Anthony J, 1988. "International Capacity Choice and National Market Games," CEPR Discussion Papers 277, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:277
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    Cited by:

    1. Wright, Donald J., 1999. "Optimal patent breadth and length with costly imitation," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 419-436, April.
    2. Anderson, Simon P. & Schmitt, Nicolas & Thisse, Jacques-Francois, 1995. "Who benefits from antidumping legislation?," Journal of International Economics, Elsevier, vol. 38(3-4), pages 321-337, May.
    3. Goo, Youngwan & Park, Hyun, 2007. "Economic growth and convergence with international differences in technology," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 145-168, March.
    4. J. Peter Neary & Joe Tharakan, 2005. "Endogenous mode of competition in general equilibrium," Working Papers 200526, School of Economics, University College Dublin.
    5. Ganslandt, Mattias, 2001. "Strategic Investment and Market Integration," Working Paper Series 560, Research Institute of Industrial Economics.
    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. 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.
    8. Marta Ferreira Dias & Silvia F. Jorge, 2017. "Market power and integrated regional markets of electricity: a simulation of the MIBEL," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 6(2), pages 45-67, November.
    9. Conconi, Paola, 2000. "Trade Bloc Formation Under Imperfect Competition," Economic Research Papers 269342, University of Warwick - Department of Economics.
    10. Alho, Kari, 1990. "Identification of Barriers in International Trade under Imperfect Competition," Working Paper Series 283, Research Institute of Industrial Economics.
    11. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    12. Neary, J Peter, 2002. "Foreign Direct Investment and the Single Market," Manchester School, University of Manchester, vol. 70(3), pages 291-314, June.
    13. Linda Hunter & James R. Markusen & Thomas F. Rutherford, 1991. "Trade liberalization in a multinational-dominated industry: a theoretical and applied general equilibrium analysis," Proceedings, Federal Reserve Bank of Dallas, pages 39-42.
    14. Avinash Dixit, 1993. "In Honor of Paul Krugman: Winner of the John Bates Clark Medal," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 173-188, Spring.
    15. Horn, H. & Shy, O., 1993. "Local services and International Market Integration," Papers 11-93, Tel Aviv - the Sackler Institute of Economic Studies.
    16. Naranjo, Alberto J., 2010. "Spillover effects of domestic law enforcement policies," International Review of Law and Economics, Elsevier, vol. 30(3), pages 265-275, September.
    17. José Méndez Naya & Luciano Méndez Naya, 2001. "Subsidios a la producción y efectos derivados de la formación de una unión aduanera," Estudios de Economia, University of Chile, Department of Economics, vol. 28(2 Year 20), pages 249-265, December.

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