DP5023 Reciprocal Dumping with Bertrand Competition
|Author(s):||Richard Friberg, Mattias Ganslandt|
|Publication Date:||April 2005|
|Keyword(s):||intra-industry trade, oligopoly, product differentiation, reciprocal dumping, transport costs|
|JEL(s):||F12, F15, L13|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5023|
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.