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What Do Voluntary Export Restraints Do?

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  • Kala Krishna

Abstract

This paper has two aims. First, to examine alternative ways of modeling VERS in imperfectly competitive markets. This is important, since the. effects of VERS are sensitive to the models used. Second, to argue that the effects of VERS also depend on whether goods are complements or Substitutes. This point is illustrated by extending the model of Krishna (1983) to allow complementary goods to be produced by domestic and foreign firms. If goods are substitutes, VERs et at free trade levels raise all profits, while if they are complements, the VERS have no effect. Thus tariffs and quotas are fundamentally non-equivalent under Bertrand duopoly when substitute goods are produced, but are equivalent when complementary goods are being produced. This is contrasted to the case of Stackelberg leadership. Th. importance of specifying the effects of any restriction on the payoff functions of agents and using this to analyze its affects on equilibrium of the game is emphasized.

Suggested Citation

  • Kala Krishna, 1988. "What Do Voluntary Export Restraints Do?," NBER Working Papers 2612, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2612
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    1. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 383-406.
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    7. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
    8. Kala Krishna, 1985. "Tariffs vs. Quotas with Endogenous Quality," NBER Working Papers 1535, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Raymond J. Deneckere & Dan Kovenock, 1988. "Capacity-Constrained Price Competition When Unit Costs Differ," Discussion Papers 861, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Saibal Kar & Mausumi Kar, 2016. "Multi-Market Firms and Export Quota: Effects of Withdrawal of the Multi-Fiber Arrangement," India Studies in Business and Economics, in: Swapnendu Banerjee & Vivekananda Mukherjee & Sushil Kumar Haldar (ed.), Understanding Development, edition 1, chapter 7, pages 99-113, Springer.

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