In the literature on the welfare effects of free trade under imperfect competition, one important case seems to have been overlooked, and that is the Bertrand duopoly model with differentiated products. Although many authors have analysed the welfare effects of free trade under Cournot duopoly and demonstrated the possibility of losses from trade, there has been no thorough analysis of the welfare effects of free trade under Bertrand duopoly. In this article we present a thorough analysis of the welfare effects of free trade under Bertrand duopoly with differentiated products, and it is shown that there are always gains from trade. JEL Classification: F12 Diffe´renciation de produits et gains du commerce international dans un duopole a`la Bertrand. Dans la litte´rature spe´cialise´e sur les effets de bien-eˆtre du libre e´change en re´gime de concurrence imparfaite, un cas de figure important semble avoir e´chappe´al 'attention des chercheurs -celui du duopole a`la Bertrand quand les produits sont diffe´rencie´s. Meˆme si de nombreux travaux ont analyse´les effets de bien-eˆtre du libre e´change dans un monde de duopole a`la Cournot, et montre´la possibilite´de pertes cause´es par le commerce international, il n'y a pas eu d'analyse approfondie des effets de bien-eˆtre du libre e´change dans un duopole a`la Bertrand. Ce me´moire pre´sente une telle analyse quand les produits sont diffe´rencie´s et montre qu'il y a toujours des gains engendre´s par le libre e´change.
This paper analyses how retaliation affects the profit shifting argument for export subsidies. Trade policy is modelled as a multistage game. At the first stage the foreign country sets its export subsidy, and then at the second stage the domestic country sets its tariff and/or production subsidy. If the domestic country pursues an optimal trade policy then it will always gain from a foreign export subsidy. When the domestic country uses a tariff and a production subsidy, the optimal foreign policy is an export subsidy. If the domestic country only uses a tariff then an export tax is usually the optimal foreign policy. Revised May 1990 *The author would like to thank Simon Cowan, David de Meza and two anonymous referees for helpful comments on an earlier draft of this paper. The author alone is responsible for any remaining errors. This paper is circulated for discussion purposes only and its contents should be considered preliminary.
A paradox in international trade is that multilateral trade liberalisation has resulted in increases in both the volume of world trade and the amount of foreign direct investment (FDI). This note presents a Cournot duopoly model with two regions, each consisting of two countries, and with an inter-regional transport cost. It is shown that multilateral trade liberalisation may lead firms to switch from exporting to undertaking export-platform FDI when the interregional transport cost is high. Also, when the inter-regional transport cost is high, the switch to FDI leads to an increase in the volume of world trade in this industry.
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