Product differentiation and the gains from trade under Bertrand duopoly

Abstract

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.

Locational disadvantage of the hub

“…In the OTT model, because the number of varieties suddenly increases in the central region owing to imports from other regions, price competition intensifies leading to a decrease in the central region's profits. The OTT model is therefore in agreement with international trade models of Brander and Krugman (1983), Anderson et al (1995), and Clarke and Collie (2003).…”

“…11 This is whatBrander and Krugman (1983) andClarke and Collie (2003) have obtained. Note, however, that the former is Cournot duopoly and the latter is Bertrand duopoly, whereas ours a is monopolistic competition with a continuum of firms producing differentiated goods.…”

Unilateral and Multilateral Gains from Trade in International Oligopoly*

“…Third, our analysis is confined to Cournot-Nash oligopoly. To our knowledge, Clarke and Collie (2003) are the first to examine gains from trade under differentiated Bertrand oligopoly. The extension to their analysis is of great interest and importance.…”

“…2 Here, we will refer to only two studies which are the closest to this paper and the other studies are mentioned in the final section. The first is Markusen (1981) who derives the sufficient conditions for gains from trade in international duopoly.…”

Trade liberalization, intra-industry trade and the environment: competition mode and the order of firms’ moves

“…For example, Brander and Krugman (1983) show that under quantity competition, multilateral free trade may decrease welfare when the increased waste due to transport costs dominates the pro-competitive effect, while Clark and Collie (2003) show that there are always gains from trade irrespective of the level of transport costs under price competition. In addition, Brander and Spencer (1985) prove that the government should subsidize exports under quantity competition since it can shift the rents from the foreign firm to the domestic firm, while Eaton and Grossman (1986) argue that the government should impose a tax under price competition.…”