Discussion Paper Details

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Title: Reciprocal Dumping with Bertrand Competition

Author(s): Richard Friberg and Mattias Ganslandt

Publication Date: April 2005

Keyword(s): intra-industry trade, oligopoly, product differentiation, reciprocal dumping and transport costs

Programme Area(s): Industrial Organization

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 autarky for any degree of product differentiation. Under Bertrand competition we show that trade may reduce welfare compared to autarky, if firms produce sufficiently close substitutes and the autarky equilibrium is sufficiently competitive. Otherwise it cannot.

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Bibliographic Reference

Friberg, R and Ganslandt, M. 2005. 'Reciprocal Dumping with Bertrand Competition'. London, Centre for Economic Policy Research.