Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 592:
Reciprocal dumping with Bertrand competition

Richard Friberg () and Mattias Ganslandt ()

Abstract: This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that welfare is a U-shaped function in the transport cost as long as trade occurs in equilibrium. With a Cournot duopoly trade can reduce welfare compared to autarchy for any degree of product differentiation. Under Bertrand competition we show that trade may reduce welfare compared to autarchy, if firms produce sufficiently close substitutes and the autarchy equilibrium is sufficiently competitive. Otherwise it can not.

Keywords: Reciprocal dumping; intra-industry trade; oligopoly; product differentiation; transport costs; (follow links to similar papers)

JEL-Codes: F12; F15; L13; (follow links to similar papers)

20 pages, March 23, 2005

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