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Oligopoly in Segmented Markets

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  • Shmuel Ben-Zvi
  • Elhanan Helpman

Abstract

We propose a new solution concept for a game among oligopolists that simultaneously compete in several segmented markets. The motivation for this solution comes from international trade, but it also has applications in other areas. It is based on a three-stage extension of the two-stage Kreps-Scheinkman game. We show that two-way trade is not an equilibrium outcome and that there exist bounds on possible cross-market priced differentials that are defined by transport costs. Prices are the same when transport costs are zero. In fact, in the limiting case of zero transport costs the equilibrium coincides with a Cournot equilibrium in a single integrated market. In the presence of transport coats there nay exist multiple equilibria.

Suggested Citation

  • Shmuel Ben-Zvi & Elhanan Helpman, 1988. "Oligopoly in Segmented Markets," NBER Working Papers 2665, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2665
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    1. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
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