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Free Trade vs. Autarky under Asymmetric Cournot Oligopoly

Listed author(s):
  • Rabah Amir

    ()

    (University of Iowa)

  • Jim Y. Jin

    ()

    (University of St Andrews)

  • Michael Troge

    ()

    (ESCP-Europe)

The paper compares free trade with autarky in an asymmetric multi-country world with Cournot competition, constant returns and linear demand. We first derive conditions for free trade to hurt a country’s consumers, to benefit its firms, to induce it to export, to increase its output, and to raise its welfare. We further show these conditions are linked in a clear order, with each one implying the next. We then demonstrate that with different reservation prices trade can reduce world output and total consumer surplus as well as world welfare and correct oversights in earlier findings by Dong and Yuan (2010).

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File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/4/1509.pdf
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Paper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 201509.

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Date of creation: 01 Oct 2015
Handle: RePEc:san:wpecon:1509
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  1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
  2. Epifani, Paolo & Gancia, Gino, 2011. "Trade, markup heterogeneity and misallocations," Journal of International Economics, Elsevier, vol. 83(1), pages 1-13, January.
  3. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
  4. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  5. Eckel, Carsten, 2008. "Globalization and specialization," Journal of International Economics, Elsevier, vol. 75(1), pages 219-228, May.
  6. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
  7. David M. G. Newbery & Joseph E. Stiglitz, 1984. "Pareto Inferior Trade," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 1-12.
  8. CORDELLA, Tito, "undated". "Trade liberalization and oligopolistic industries: a welfare appraisal," CORE Discussion Papers RP 1049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Baomin Dong & Lasheng Yuan, 2010. "The Loss from Trade under International Cournot Oligopoly with Cost Asymmetry," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 818-831, November.
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