A 'Reciprocal Dumping' Model of International Trade
This paper develops a model where rivalry of oligopolistic firms serves as an independent cause of international trade. The model shows how such rivalry naturally gives rise to "dumping" of output in foreign markets, and show such dumping can be reciprocal -- there may be two-way trade in the same product. Reciprocal dumping is possible for fairly general specifications of firm behaviour. The welfare effects of this seemingly pointless trade are ambiguous: resources are wasted, but increased competition reduces monopoly distortions. Surprisingly, with free entry and Cournot behaviour, reciprocal dumping is unambiguously beneficial.
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