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When The Threat Is Stronger Than The Execution: Trade Liberalization And Welfare Under Oligopoly

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  • Peter Neary
  • Dermot Leahy

Abstract

We compare trade liberalization under Cournot and Bertrand competition in reciprocal markets. In both cases, the critical level of trade costs below which the possibilityof trade affects the domestic firm's behavior is the same; trade liberalization increases trade volume monotonically; and welfare follows a U-shaped pattern. However, welfareis usually greater under Bertrand than Cournot competition, despite the fact that for higher trade costs the volume of trade is greater under Cournot competition. In general,there exists a “Nimzowitsch Region” in parameter space, where welfare is higher under Bertrand competition even though no actual trade takes place.

Suggested Citation

  • 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.
    • Handle: RePEc:oxf:wpaper:775
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    References listed on IDEAS

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    Cited by:

    1. Wrona, Jens & Kreickemeier, Udo, 2016. "Industrialisation and the Big Push in a Global Economy," VfS Annual Conference 2016 (Augsburg): Demographic Change 145707, Verein für Socialpolitik / German Economic Association.
    2. Keith Head & Barbara J. Spencer, 2017. "Oligopoly in international trade: Rise, fall and resurgence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1414-1444, December.

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    More about this item

    Keywords

    Cournot and Bertrand Competition; Cross-Hauling; Nimzowitsch Region; Oligopoly and Trade; Trade Liberalization;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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