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Retaliatory disagreement point with asymmetric countries. Evidence from European wine sector during enlargement

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  • PERJU, Genoveva Elena

Abstract

The vector space model facilitates a very useful representation of the strategic interaction in trade because it is possible to incorporate both symmetric and asymmetric features of the players. This paper characterizes the Nash solution of the non-cooperative international trade game in the orthogonal vector space. We have used the standard properties of the Nash solution to determine if the non-cooperative action-reaction trade policy space should be written in terms of 'import-import' or 'import-export' quotas as strongest punishment. The trade policy space defined by import-export' quotas is not a Nash solution of the non-cooperative game but an improvement in the disagreement set. We show the positive correlation between import and export quotas using data on trade relations between EU-15, Romania, Hungary and Bulgaria for wine sector during 1995-2005. In our model the outcome of the non-cooperative trade is autarky. Retaliation is played when countries restrict their imports to one third of the national optimum.

Suggested Citation

  • PERJU, Genoveva Elena, 2009. "Retaliatory disagreement point with asymmetric countries. Evidence from European wine sector during enlargement," MPRA Paper 17757, University Library of Munich, Germany, revised 03 Oct 2009.
  • Handle: RePEc:pra:mprapa:17757
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    File URL: https://mpra.ub.uni-muenchen.de/17757/1/MPRA_paper_17757.pdf
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    References listed on IDEAS

    as
    1. Harvey Lapan & Jean-Philippe Gervais, 2004. "The Nonequivalence of Import and Export Quotas in Strategic Equilibrium," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 130-137, February.
    2. Cadot, Olivier & de Melo, Jaime & Olarreaga, Marcelo, 1998. "Harmonizing External Quotas in a FTA: A Step Backward?," CEPR Discussion Papers 2002, C.E.P.R. Discussion Papers.
    3. Constantinos Syropoulos & Elias Dinopoulos & Mordechai E. Kreinin, 1995. "Bilateral Quota Wars," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 939-944, November.
    4. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-160, February.
    5. Edward Tower, 1975. "The Optimum Quota and Retaliation," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 623-630.
    6. Nakanishi, Noritsugu, 1999. "Reexamination of the International Export Quota Game through the Theory of Social Situations," Games and Economic Behavior, Elsevier, vol. 27(1), pages 132-152, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    asymmetries; quotas; non-cooperative game; disagreement points; Nash solution;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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