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The Loss from Trade under International Cournot Oligopoly with Cost Asymmetry

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  • Baomin Dong
  • Lasheng Yuan

Abstract

This paper examines the efficiency and welfare effects of intra‐industry trade in the presence of imperfect competition and heterogeneous technologies. We show that when a Southern country has a relatively less concentrated industry and faces low demand, the output of the Northern country may contract after initiating trade. Production inefficiencies can outweigh the gain effected by trade‐induced competition and lower price in trade, resulting in a net loss in the global welfare. In some circumstances, voluntary technology transfer, managed trade through VERs, or the introduction of a tariff can improve both trading partners' welfare.

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  • 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.
    • Handle: RePEc:bla:reviec:v:18:y:2010:i:5:p:818-831
    DOI: 10.1111/j.1467-9396.2010.00894.x
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    Cited by:

    1. Rabah Amir & Hend Ghazzai & Rim Lahmandi-Ayed, 2020. "On the Political Economy of Free Trade," Working Papers hal-02506064, HAL.
    2. Mariel Leal & Arturo García & Sang-Ho Lee, 2020. "Effects of Integration with a Consumer-Friendly Firm in a Cournot Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 587-604, September.
    3. Leal, Mariel & Garcia, Arturo & Lee, Sang-Ho, 2017. "Effects of globalizing a consumer-friendly firm into an asymmetric mixed duopoly," MPRA Paper 83512, University Library of Munich, Germany.
    4. Rabah Amir & Jim Y. Jin & Michael Troge, 2015. "Free Trade vs. Autarky under Asymmetric Cournot Oligopoly," Discussion Paper Series, School of Economics and Finance 201509, School of Economics and Finance, University of St Andrews.
    5. Wan, Qin & Yang, Shilei & Shi, Victor & Qiu, Martin, 2021. "Optimal strategies of mobile targeting promotion under competition," International Journal of Production Economics, Elsevier, vol. 237(C).
    6. Rabah Amir & Jim Y. Jin & Michael Troege, 2022. "On the limits of free trade in a Cournot world: When are restrictions on trade beneficial?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(4), pages 2036-2057, November.
    7. Rabah Amir & Jim Y. Jin & Michael Tröge, 2017. "Free Trade versus Autarky under Asymmetric Cournot Oligopoly," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 98-107, February.

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