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When The Threat Is Stronger Than The Execution: Trade Liberalization And Welfare Under Oligopoly

Author

Listed:
  • Peter Neary
  • Dermot Leahy

Abstract

Abstract: We compare trade liberalization under Cournot and Bertrand competition in reciprocal markets. In both cases, the critical level of trade costs below which the possibilityof trade affects the domestic firm's behavior is the same; trade liberalization increases trade volume monotonically; and welfare follows a U-shaped pattern. However, welfareis usually greater under Bertrand than Cournot competition, despite the fact that for higher trade costs the volume of trade is greater under Cournot competition. In general,there exists a “Nimzowitsch Region” in parameter space, where welfare is higher under Bertrand competition even though no actual trade takes place.

Suggested Citation

  • Peter Neary & Dermot Leahy, 2015. "When The Threat Is Stronger Than The Execution: Trade Liberalization And Welfare Under Oligopoly," Economics Series Working Papers 775, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:775
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    File URL: http://www.economics.ox.ac.uk/materials/papers/14365/paper-775.pdf
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    References listed on IDEAS

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    1. Brander, James A. & Spencer, Barbara J., 2015. "Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation," Research in Economics, Elsevier, vol. 69(2), pages 157-165.
    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. David R. Collie & Vo Phuong Mai Le, 2015. "Product Differentiation, the Volume of Trade and Profits under Cournot and Bertrand Duopoly," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(1), pages 73-86, February.
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    Cited by:

    1. repec:cje:issued:v:50:y:2017:i:5:p:1414-1444 is not listed on IDEAS
    2. 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.

    More about this item

    Keywords

    Cournot and Bertrand Competition; Cross-Hauling; Nimzowitsch Region; Oligopoly and Trade; Trade Liberalization;

    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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