Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 592: Reciprocal dumping with Bertrand competition

Richard Friberg () and Mattias Ganslandt ()
Additional contact information
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.

Keywords: Reciprocal dumping; intra-industry trade; oligopoly; product differentiation; transport costs

JEL-codes: F12; F15; L13

20 pages, March 23, 2005

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