() and Mattias Ganslandt
Richard Friberg: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Mattias Ganslandt: IUI, Postal: IUI (The Research Institute of Industrial Economics),, P.O. Box 5501, SE-11485 Stockholm, Sweden
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.
20 pages, March 23, 2005
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