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Optimal Retaliation in International Commodity Markets

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  • Vanzetti, David
  • Kennedy, John O.S.

Abstract

Retaliation and other strategic trade policies can be readily observed in world commodity markets. Strategic behaviour can be analysed with game-theoretic models. Game theory is used to assess the effects of retaliation, given that traders assume that rivals will respond to any policy change. Estimates of expected responses are obtained for each trading bloc, and are included in regional welfare functions. These are used to derive a market-cleaning global equilibrium in which domestic prices, trade flow and welfare distribution in each region are determined. Market power among importers relative to exporters determines the effect of changes in expectations of retaliation on optimal trade policies and trade flows. The analysis is applied to a twenty-one region linear wheat trade model.

Suggested Citation

  • Vanzetti, David & Kennedy, John O.S., 1989. "Optimal Retaliation in International Commodity Markets," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 57(01-02-03), pages 1-25, December.
    • Handle: RePEc:ags:remaae:12443
    DOI: 10.22004/ag.econ.12443
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    References listed on IDEAS

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    Cited by:

    1. D. MacLaren, 1991. "Agricultural Trade Policy Analysis And International Trade Theory: A Review Of Recent Developments," Journal of Agricultural Economics, Wiley Blackwell, vol. 42(3), pages 250-297, September.

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