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Product differentiation, competition, and international trade

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  • Daniel M. Bernhofen

Abstract

In this paper the two workhorse theories of international trade under imperfect competition – Krugman’s taste for variety model and Brander’s strategic intra‐industry trade model – are integrated into a single analytical framework. A quadratic utility function allows for a nesting of these two theories by postulating a consumer taste for variety over differentiated products, where the extent of product differentiation is linked to the intensity of strategic interaction among firms. The model yields intuitive predictions on the effects of the degree of product differentiation on the volume of trade and on the composition of the gains from trade under imperfect competition. JEL classification: F12 Différenciation de produits, concurrence et commerce international. Ce mémoire intègre deux théories connues du commerce international en régime de concurrence imparfaite – le modèle du goût pour la variété de Krugman et celui du commerce intra‐industrie de Brander – en un seul cadre analytique. Une fonction d’utilité quadratique permet d’encadrer ces deux théories en postulant que le consommateur a un goût pour la variété dans une gamme de produits différenciés où le degré de différenciation est reliéà l’intensité de l’interaction stratégique entre les entreprises. Le modèle engendre des prévisions quant aux effets du degré de différenciation des produits sur le volume de commerce international et la composition des gains résultant de ce commerce en régime de concurrence imparfaite.

Suggested Citation

  • Daniel M. Bernhofen, 2001. "Product differentiation, competition, and international trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 34(4), pages 1010-1023, November.
  • Handle: RePEc:wly:canjec:v:34:y:2001:i:4:p:1010-1023
    DOI: 10.1111/0008-4085.00110
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    Citations

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    Cited by:

    1. Fujiwara, Kenji, 2009. "Trade liberalization in a differentiated duopoly reconsidered," Research in Economics, Elsevier, vol. 63(3), pages 165-171, September.
    2. Paulo Bastos & Odd Rune Straume, 2012. "Globalization, product differentiation, and wage inequality," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(3), pages 857-878, August.
    3. 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.
    4. Dermot Leahy & J. Peter Neary, 2021. "When the threat is stronger than the execution: trade and welfare under oligopoly," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 471-495, September.
    5. Collie, David R., 2016. "Gains from variety? Product differentiation and the possibility of losses from trade under Cournot oligopoly with free entry," Economics Letters, Elsevier, vol. 146(C), pages 55-58.
    6. Kwon, Chul-Woo & Lapan, Harvey E., 2011. "Does market familiarity bless multinational in strategic competition?," Japan and the World Economy, Elsevier, vol. 23(1), pages 58-62, January.
    7. 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.
    8. Thierry Madiès & Emmanuelle Taugourdeau, 2020. "Vertical transfers and tax competition: does trade integration matter?," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(3), pages 453-475, October.
    9. Friberg, Richard & Ganslandt, Mattias, 2005. "Reciprocal dumping with Bertrand competition," SSE/EFI Working Paper Series in Economics and Finance 592, Stockholm School of Economics.
    10. 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.
    11. John Gilbert & Onur A. Koska & Reza Oladi, 2022. "International trade, differentiated goods, and strategic asymmetry," Southern Economic Journal, John Wiley & Sons, vol. 88(3), pages 1178-1198, January.
    12. José Daniel Reyes, 2013. "Trade Liberalization and the Adoption of Antidumping Laws in Developing Countries," Revista Equidad y Desarrollo, Universidad de la Salle, December.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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