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A 'Reciprocal Dumping' Model of International Trade

Author

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  • James Brander
  • Paul Krugman

Abstract

This paper develops a model where rivalry of oligopolistic firms serves as an independent cause of international trade. The model shows how such rivalry naturally gives rise to "dumping" of output in foreign markets, and show such dumping can be reciprocal -- there may be two-way trade in the same product. Reciprocal dumping is possible for fairly general specifications of firm behaviour. The welfare effects of this seemingly pointless trade are ambiguous: resources are wasted, but increased competition reduces monopoly distortions. Surprisingly, with free entry and Cournot behaviour, reciprocal dumping is unambiguously beneficial.

Suggested Citation

  • James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Paper 513, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:513
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    References listed on IDEAS

    as
    1. Charles R. Frank, 1965. "Entry in a Cournot Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(3), pages 245-250.
    2. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-389, August.
    3. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
    4. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    5. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    6. R. J. Ruffin, 1971. "Cournot Oligopoly and Competitive Behaviour," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(4), pages 493-502.
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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