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Asymmetric Entry Equilibrium in a Symmetric Trading Oligopoly Model

Author

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  • T.Huw Edwards

    (School of Business and Economics, Loughborough University)

Abstract

We examine the R&D and export decisions of two ex ante symmetric firms in symmetric countries, with both unit trade costs and fixed entry costs to the export market. When both trade costs are low, there will be a symmetric, cross-hauling duopoly, but if fixed costs are fairly high, unit trade costs are low and R&D is relatively cheap, there will be an asymmetric entry equilibrium, in which the exporting firm carries out higher R&D, has lower costs and larger profits. With higher R&D costs and/or higher unit trade costs, there will also be a zone where crosshauling duopoly and non-trading are simultaneously Nash equilibria.

Suggested Citation

  • T.Huw Edwards, 2014. "Asymmetric Entry Equilibrium in a Symmetric Trading Oligopoly Model," Discussion Paper Series 2014_03, Department of Economics, Loughborough University, revised Feb 2014.
    • Handle: RePEc:lbo:lbowps:2014_03
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    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Huw_Edwards_Asymm_WP2014_03.pdf
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    More about this item

    Keywords

    Trade; oligopoly; market entry;
    All these keywords.

    JEL classification:

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

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