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Discussion Paper Details

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Title: International Capacity Choice and National Market Games

Author(s): Anthony Venables

Publication Date: October 1988

Keyword(s): Cournot Equilibrium, Economic Capacity, International Trade, Market Structure and Oligopoly

Programme Area(s): International Trade and Regional Economics

Abstract: A series of models are developed in which international trade is modelled as a two-stage game between firms in two countries. At the first stage firms choose their productive capacity. At the second stage different types of market game are played. The most interesting case is that in which firms play a separate price game in each national market, given their worldwide capacity levels. It is established that (i) firms use capacity strategically, in order to manipulate the distribution of rivals' output between markets; (ii) the volume of intra-industry trade is intermediate between the two cases most extensively studied in the trade literature (integrated- and segmented-market Cournot equilibria); and (iii) countries gain from small import tariffs and export subsidies, but these gains are less than in the case of segmented markets and a Cournot equilibrium.

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Bibliographic Reference

Venables, A. 1988. 'International Capacity Choice and National Market Games'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=277