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Mixed Strategy Trade Equilibria

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  • Michael R. Baye
  • Casper G. De Vries

Abstract

Two major paradigms prevail in trade theory: perfect competition and monopolistic competition. In the former case, only prices are important whereas product characteristics are important in the latter case. In both instances, pure-strategy equilibria exist. This paper considers the hybrid situation where some customers care only about the price while others have a brand preference or care about product characteristics. It is shown that an equilibrium in pure strategies does not exist but that a mixed-strategy equilibrium does exist. This in turn implies endogenous uncertainty in the pattern, terms, and the gains from trade.

Suggested Citation

  • Michael R. Baye & Casper G. De Vries, 1992. "Mixed Strategy Trade Equilibria," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 281-293, May.
    • Handle: RePEc:cje:issued:v:25:y:1992:i:2:p:281-93
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    Citations

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    Cited by:

    1. Fisher, Eric ON. & Wilson, Charles A., 1995. "Price competition between two international firms facing tariffs," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 67-87, March.
    2. Dimitra Petropoulou, 2007. "Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly," Economics Series Working Papers 371, University of Oxford, Department of Economics.
    3. Roy, Santanu, 2000. "Strategic segmentation of a market," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1279-1290, December.
    4. Michal Ostatnicky, 2010. "Oligopolistic Price Competition with Informed and Uninformed Buyers," CERGE-EI Working Papers wp413, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Petkov, Vladimir, 2018. "A model of sales with differentiated and homogeneous goods," Economics Letters, Elsevier, vol. 171(C), pages 214-217.

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