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A model of countertrade

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  • Ellingsen, Tore

Abstract

Countertrade - or reciprocal buying - is defined as a transaction involving (at least) a two-way transfer of goods, rather than a singular transfer of goods for money. The main objective of this paper is to explain the extensive use of countertrade both between countries and between firms within one country. In a simple game-theoretic model it is shown that countertrade may be a rational business strategy for firms with buying power, and that the impact on welfare is negative, even in the case where no firm exists. The model is consistent with the observations that countertrade occurs mainly in homogeneous goods industries, that trades are relatively balanced and that the practice is more widespread during recessions than during booms.

Suggested Citation

  • Ellingsen, Tore, 1991. "A model of countertrade," LSE Research Online Documents on Economics 6782, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:6782
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    File URL: http://eprints.lse.ac.uk/6782/
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    Cited by:

    1. Ellingsen, Tore & Stole, Lars A., 1996. "Mandated countertrade as a strategic commitment," Journal of International Economics, Elsevier, vol. 40(1-2), pages 67-84, February.
    2. John Sutton, 2001. "Rich Trades, Scarce Capabilities: Industrial Development Revisited," STICERD - Economics of Industry Papers 28, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.

    More about this item

    Keywords

    Countertrade; reciprocal buying; two-way transfer of goods; gametheoretic model; rational business strategy; homogeneous goods industries.;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • J1 - Labor and Demographic Economics - - Demographic Economics

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