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Is International Trade Profitable to Oligopolistic Industries?

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  • Anderson, Simon P
  • Donsimoni, M-P
  • Gabszewicz, J J

Abstract

The authors examine whether oligopolistic autarkic industries operating in two different countries would gain from the opening of trade. They analyze a wide range of behavioral assumptions (as parameterized by conjectural variations) and a homogeneous products oligopoly for a large class of demand functions. Their findings can be summarized as follows: (1) for any given number of firms in each country's industry, there is always at least one of the two countries where firms make higher profits under autarky than under free trade; and (2) when there are fixed costs and the industry in each country is at its long-run (zero profit) autarkic equilibrium, then all firms in both countries lose from trade. Additional results are derived for the case when the demand sizes of countries can be parameterized in a meaningful way. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Anderson, Simon P & Donsimoni, M-P & Gabszewicz, J J, 1989. "Is International Trade Profitable to Oligopolistic Industries?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 725-733, November.
    • Handle: RePEc:ier:iecrev:v:30:y:1989:i:4:p:725-33
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    Cited by:

    1. 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.
    2. Ana Mauleon & Huasheng Song & Vincent Vannetelbosch, 2010. "Networks of Free Trade Agreements among Heterogeneous Countries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 471-500, June.
    3. 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.
    4. Antonio Cabrales & Massimo Motta, 1996. "Country asymmetries, endogenous product choice and the speed of trade liberalization," Economics Working Papers 259, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1998.
    5. Moner-Colonques, Rafael, 1998. "Cost uncertainty and trade liberalization in international oligopoly," Journal of International Economics, Elsevier, vol. 45(2), pages 369-376, August.
    6. Peter Neary & Dermot Leahy, 2015. "When The Threat Is Stronger Than The Execution: Trade Liberalization And Welfare Under Oligopoly," Economics Series Working Papers 775, University of Oxford, Department of Economics.
    7. repec:ebl:ecbull:v:6:y:2007:i:4:p:1-7 is not listed on IDEAS
    8. J. Peter Neary, 2016. "International Trade in General Oligopolistic Equilibrium," Review of International Economics, Wiley Blackwell, vol. 24(4), pages 669-698, September.
    9. Cabrales, Antonio & Motta, Massimo, 2001. "Country asymmetries, endogenous product choice and the timing of trade liberalization," European Economic Review, Elsevier, vol. 45(1), pages 87-107, January.
    10. Baomin Dong & Huasheng Song & Xiaolin Qian, 2016. "International R&D Collaboration and Strategic Trade Policy," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 250-260, February.
    11. Straume, Odd Rune, 2002. "Union collusion and intra-industry trade," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 631-652, May.
    12. Goerke, Laszlo, 2020. "A political economy perspective on horizontal FDI in a dynamic Cournot-oligopoly with endogenous entry," European Journal of Political Economy, Elsevier, vol. 63(C).
    13. Toru Kikuchi & Chiharu Kobayashi, 2007. "Network Effects and the Impact of Trade Liberalization," Economics Bulletin, AccessEcon, vol. 6(4), pages 1-7.
    14. BACCHIEGA, Emanuele, 2004. "Vertical differentiation, wage bargaining and intra-industry trade liberalization," LIDAM Discussion Papers CORE 2004028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    15. 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.
    16. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    17. Rabah Amir & Hend Ghazzai & Rim Lahmandi-Ayed, 2023. "On the political economy of economic integration," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 61(1), pages 61-100, July.

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