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Imperfect Substitutes and Trade Policy under Cournot Duopoly

Author

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  • Seiichi Katayama

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Hiroshi Ohta

Abstract

We study a duopoly model of trade and its trade policy. The two country trade model to be discussed is the following. There are three goods (0,1 and 2). Good 0 is produced by perfectly competitive firms, and the good 1 and the good 2 are imperfect substitutes, each produced by a home and a foreign monopolist respectively. The good 1 and the good 2 are produced with nonlinear cost functions. Each monopolist behaves in Cournot fashion. The home country can consider an import tariff and / or an export subsidy as policy instruments. In this paper we shall consider the uniqueness of the general equilibrium solution and the policy effects of tariffs and subsidy. Comparative static analysis in terms of an import tariff and an export subsidy is presented. The paper also considers the home country's policy implications of an import tariff and an export subsidy on production, trade, and consumption of each country's good, and on the welfare of each country and the world as a whole.

Suggested Citation

  • Seiichi Katayama & Hiroshi Ohta, 1997. "Imperfect Substitutes and Trade Policy under Cournot Duopoly," Discussion Paper Series 84, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:84
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    More about this item

    Keywords

    Trade; Duopolies; General equilibrium;

    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

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