International Trade Under Oligopoly Conditions

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ECON 355: International Trade Spring 2018 Location: Social

9. Tariffs and Quotas under Oligopoly 10. Infant-Industry Protection 11. Trade Creation and Trade Diversion (time permitting) Grading Your final course grade will be based on 5 or 6 problem sets given throughout the semester, a midterm exam, a final exam and a project based on the book Free Trade under Fire, by Doug Irwin.

An Oligopolistic Heckscher-Ohlin Model of Foreign Direct

where pis the price of the oligopoly good. Under free trade the inverse demand function for the oligopoly good is p= p(D+ D;Y;Y ); (9) where Y and Y are national income, and Dand D are demand for the oligopoly good, in the two countries. Given the pro t functions in (8) and demand function (9), the rst-order


Under certain conditions, oligopolists can coordinate their prices (and/or any other variable) and jointly achieve supra-competitive profits, without however entering into any institutional arrangement (a contract, a combination, an agreement, a joint-venture, a trade association, etc.).


cost AC1. Under these conditions economic profits would be positive leading to entry increasing the number of firms up to n2. Should the number of firms be greater than n2 then the opposite would occur. International Trade We can now use this model to derive some important implications for international trade.

Strategic Environmental Policy and International Trade in

taxes below the Pigouvian level in non-cooperative trade contexts. It may be optimal to set an environmental tax below marginal external damage under international oligopoly, because, in the sense of Brander and Spencer (1985), the incentive to internalize pollution damages is tempered by the ability of a country to shift rent.

Test of Multilateralism in International Trade: U.S. Steel

the observation of those trade concessions previously negotiated and agreed upon among the members of the WTO ( Members ).2 Under certain conditions, the GATT/WTO rules authorize trade measures that restrict imports unilaterally, beyond the bounds of those concessions. The

Competition & Change Oligopoly-driven The Author(s) 2021

2008, 52% of world trade occurred under such arrangements (although the growth rate of GVC trade has stagnated since then, see Figure 1). Evoking Adam Smith (1776), the Report portrays hyperspecialization (WDR2020: 14) as a process where supplier firms access advanced markets by focusing on the production of

strategic trade policy - UBC Blogs

Strategic trade policy refers to trade policy that affects the outcome of strategic interactions between firms in an actual or potential international oligopoly. A main idea is that trade policies can raise domestic welfare by shifting profits from foreign to domestic firms. A wellknown -

Trade, Productivity and Welfare when Monopolistic Competition

importance of a small number of large firms (superstar firms) in international trade today, and it is required to depart from the monopolistic competition model with massless firms.2 The reality is well described by a coexistence of monopolistic competition and oligopoly. In order to incorporate the above recognition, we develop a two-country

Optimal Trade and Industrial Policy under Oligopoly Jonathan

of oligopolistic competition suggests that trade policy may be a substitute for antitrust policy if policies can be devised that shrink the wedge between opportunity cost in production and marginal valuation to consumers. A number of recent papers have focused on the profit-shifting motive for trade policy under oligopoly. Brander and Spencer

Dermot Leahy, J. Peter Neary

Trade and Welfare under Oligopoly. 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 possibility of trade affects the domestic firm s behavior is the same; trade liberalization increases trade volume monotonically;

General Equilibrium Oligopoly and Ownership Structure

The difficulties of incorporating oligopoly into a general equilibrium framework have hindered the modeling of market power in macroeconomics and international trade. The reason is that there is no simple objective for the firm when firms are not price takers. 2. In a general equilibrium, moreover, firms

Strategic Trade Policy on Oligopolistic Markets

under other market structures. Any external intervention alters the strategic interaction between players on the market. The most profitable support is connected with the international oligopolistic markets. If a domestic firm is a part of an international oligopoly and receives any kind of support


I will now show that it is very easy to formulate the theory of international trade under oligopoly under conditions as general as the Heckscher-Ohlin-Samuelson model of trade. The quote from Alfred Marshall at the beginning of this essay provides the initial insight: the dominant force is the industry (Marshall, 1920).

Optimal Trade and Industrial Policy under Oligopoly

the implications of intervention only under conditions of perfect *Financial support for this research was provided by the National Science Foundation under grants SES 8207643 and PRA 8211940 and by the International Labor Affairs Bureau, U. S. Department of Labor, under contract J9K 30006. We


(1985) identi ed a new justi cation for interventionist trade policy: by committing to a trade policy, governments can change the conditions of strategic interaction between rms. However, despite the large literatures stimulated by these contributions, the the-ory of international trade under oligopoly has never attained the status of

Market Distortions and Public Enterprise Strategies in an

The trade policy of the home country include import tariffsdenotedbyt, and production subsidy for domestic firms home sales denoted by s,both in specific rate i.e. as amounts of money per unit of output. In an international oligopoly without public enterprise, these policy instruments are enough to correct distortions (Dixit, 1984).

A unified model of international trade with increasing returns

results in its gains from trade, whereas the small country may lose from trade. Markusen (1981), on the other hand, gives a first formulation of a two-country model of international oligopoly to explore trade patterns, factor price equalization, and gains from trade. One of his main results is that a small country necessarily gains from trade,

Competition in Global Oil Markets: A Meta-Analysis and Review

share. Those firms dominated both international trade in petroleum and access to reserves. Public policy debates centered on the dangers of private monopolies controlling the market. Today, traditional for-profit companies no longer control the vast majority of the world s oil reserves. Instead, an international cartel (the Organization of

Offshoring under Oligopoly Yale University

global scope.2 Contrary to the standard models of international trade and ff with monopolistic competition, oligopoly settings imply a firm s profit and survival depend not only on the firm s own production location (and hence cost structure), but also on its ri-vals locations.

Impact of International Trade on Unemployment under Oligopoly

international trade on average are larger than firms that do not engage in trade, the relevance of oligopolistic competition to international trade is greater than that to a closed economy (Bleaney and Wakelin, 2002). Firms engaging in international trade frequently have market power and engage in oligopolistic competition.


that trade policy may be a substitute for antitrust policy in an open economy setting, if policies can be devised that effectively shrink the wedge between opportunity cost in production and marginal valuation to consumers. A number of recent papers have focused on the profit shifting motive for trade policy under oligopoly.

Merger Policy in a Quantitative Model of International Trade

In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to bene t domestic consumers is too tough or too lenient from the viewpoint of the

Econometrica, Vol. 63, No. 4 (July, 1995), 891-951

industry is modelled as an oligopoly with product differentiation. Equilibrium is charac-terized by the first order conditions of the profit maximizing firms. The estimation results are used in counterfactual simulations to investigate two trade policy issues: the effects of the VER, and exchange rate pass-through.

Unilateral and Multilateral Gains from Trade in International

Constructing a two-agent model of international duopoly with increasing re-turns, this paper examines the potential gains from free trade. It is shown that under certain conditions, both agents in a country become worse off in free trade than in autarky with no redistribution. Further, the lump-sum compensation can

Trade Policy under Imperfect Competition: A Numerical Assessment

2 Trade Policy under Imperfect Competition: A Numerical Assessment Anthony J. Venables 2.1 Introduction The literature on international trade under imperfect competition is now more than 10 years old. Many of the papers in this literature have been moti- vated by policy concerns, yet much uncertainty remains about the possible

Government Policies in a Granular Global Economy

Large ˙rms shape national economies (Gabaix(2011)) and drive international trade even more so. Indeed,Gaubert and Itskhoki(2020) ˙nd that ˙rm-level granular forces shape compara-tive advantage and trade patterns: they account for about 20% of sectoral variation in export intensity, and are more pronounced in highly export-intensive


Y. Tanaka: Welfare Effects of Tariffs in Free-Entry Oligopoly under Integrated Markets the home country in a free trade equilibrium increases its own welfare if demand functions of oligopolistic goods are linear.1) In this paper I ewe the welfare effects of unilateral and reciprocal tariffs under more

Multiproduct-Firm Oligopoly: An Aggregative Games Approach

rm oligopoly in a general equilibrium model with a continuum of sectors. This approach encompasses models that have been used in the quantitative trade literature as special cases (Atkeson and Burstein, 2008; Edmond, Midrigan, and Xu, 2015; Hottman, Redding, and Weinstein, 2016). Finally, we show how to adapt our approach to analyze non-linear

Market Structure: Oligopoly (Imperfect Competition)

Pure oligopoly have a homogenous product. Pure because the only source of market power is lack of competition. An example of a pure oligopoly would be the steel industry, which has only a few producers but who produce exactly the same product. Impure oligopoly have a differentiated product. Impure because have both lack of

Oligopoly, Macroeconomic Performance, and Competition Policy

Oligopoly is widespread and allegedly on the rise. Many industries are characterized by oligopolistic conditions including, but not limited to, the digital ones dominated by FAMGA: Facebook, Apple, Mi-crosoft, Google (now Alphabet), and Amazon. Yet oligopoly is seldom considered by macroeconomic

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International Trade economies of scale foreign direct investment under monopolistic competition foreign direct investment under oligopoly Heckscher-Ohlin model monopolistic competition New Economic Geography New Trade Theory nontraded goods oligopoly models political economy of trade policy Ricardian model specific-factors model

Oligopoly and Ricardo

Oligopoly and Trade: What, How Much, and For Whom? Roy J. Ruffin1 January 1999 This paper integrates the Cournot oligopoly model with the Ricardian comparative advantage model under conditions of Mill-Graham demand. The Ricardian trade pattern is robust, but can be reversed in extreme conditions with small enough differences in comparative

International Trade Patterns under Quasi-Linear Preferences∗

content of trade in the context of the two-good, two-factor, two-country framework. We also establish conditions under which an exact (as opposed to a modified) version of the HO theorem holds for the case of quasi-linear preferences. Our analysis generates several novel results. The pattern of trade under quasi-linear

Competitive Di⁄erential Pricing

Abstract. This paper analyzes welfare under di⁄erential versus uniform pricing across oligopoly markets that di⁄er in costs of service. We establish general demand conditions for di⁄eren-tial pricing by symmetric rms to increase consumer surplus, pro t, and total welfare. The

Trade liberalization and environmental tax in differentiated

effects on the environment in mixed oligopoly; but, in pure oligopoly with homogeneous goods, the tariff reduction is bad for the environment. Citation: Wang, Leonard F.S., Ya-Chin Wang, and Tai-Liang Chen, (2007) Trade liberalization and environmental tax in differentiated oligopoly with consumption externalities.


variations approach to analyze international trade policy issues involving oligopoly structures. Two notable contributions are by Cheng and Dixit. Leonard Cheng (1988), Assisting Domestic Industries under International Oligopoly: The Relevance of the Nature of Competition to optimal Policies, American Economic