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Gains and losses from unilateral free trade under oligopoly

Author

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  • David R. Collie

    (Cardiff Businees School, University of Wales)

Abstract

This paper analyses unilateral trade liberalisation in a Cournot duopoly model where the domestic and the foreign firm have different marginal costs. There are three results in the paper. Firstly, with linear demand, it is shown that the domestic country will lose as a result of unilateral free trade unless the foreign firm has a significant cost advantage. Secondly, it is shown that a sufficient condition for there to be gains from unilateral free trade is that the domestic firm is so uncompetitive that it ceases production under free trade. This result is generalised to the case of a Cournot oligopoly with non-linear demand. Thirdly, it is shown that there will always be gains from unilateral free trade with constant elasticity demand functions whatever the elasticity of demand or the relative costs of the domestic and foreign firms.

Suggested Citation

  • David R. Collie, 1996. "Gains and losses from unilateral free trade under oligopoly," Discussion Papers (REL - Recherches Economiques de Louvain) 1996024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:1996024
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    Citations

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    Cited by:

    1. Fujiwara, Kenji, 2009. "Trade liberalization in a differentiated duopoly reconsidered," Research in Economics, Elsevier, vol. 63(3), pages 165-171, September.
    2. Roger Clarke & David Collie, 2003. "Product differentiation and the gains from trade under Bertrand duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 658-673, August.
    3. Mukherjee, Arijit & Neogi, Chiranjib, 2014. "Vertical technology transfer and the welfare implications of patent protection," Research in Economics, Elsevier, vol. 68(3), pages 239-247.
    4. Tsai, Yingyi & Mukherjee, Arijit & Chen, Jong-Rong, 2016. "Host market competition, foreign FDI and domestic welfare," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 13-22.
    5. Collie, David R., 2019. "Trade Wars under Oligopoly: Who Wins and is Free Trade Sustainable?," Cardiff Economics Working Papers E2019/4, Cardiff University, Cardiff Business School, Economics Section.
    6. Sajal Lahiri & Yingyi Tsai, 2019. "Foreign penetration and domestic competition," Journal of Economics, Springer, vol. 128(1), pages 27-45, September.
    7. Collie, David R., 2017. "A Simple Model of Brexit under Oligopoly," Cardiff Economics Working Papers E2017/17, Cardiff University, Cardiff Business School, Economics Section.
    8. Toru Kikuchi, 2009. "Switching Costs And The Foreign Firm'S Entry," Manchester School, University of Manchester, vol. 77(3), pages 366-372, June.
    9. Sugata Marjit & Arijit Mukherjee, 2015. "Endogenous Market Structure, Trade Cost Reduction, and Welfare," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 493-511, September.
    10. Kenji Fujiwara, 2005. "Unilateral and Multilateral Gains from Trade in International Oligopoly," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 404-413, December.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • 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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