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Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation

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  • Brander, James A.
  • Spencer, Barbara J.

Abstract

This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. If trade occurs, Bertrand firms always differentiate their products more that Cournot firms. However, sufficiently high differentiation costs can prevent product differentiation. Trade in homogeneous products never takes place under Bertrand competition. Bertrand firms will either differentiate their products or will not export. Cournot firms, however, may trade in either homogeneous or differentiated products. Product differentiation can significantly increase the gains from trade under both Cournot and Bertrand oligopoly.

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  • 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.
    • Handle: RePEc:eee:reecon:v:69:y:2015:i:2:p:157-165
    DOI: 10.1016/j.rie.2015.02.007
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    More about this item

    Keywords

    Bertrand; Cournot; Product differentiation; Intra-industry trade; Gains from trade;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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