International Trade, Differentiated Goods and Strategic Asymmetry

John Gilbert, Onur Koska and Reza Oladi

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: We scrutinize international trade arising from oligopolistic rivalry (reciprocal dumping) in a model where the goods are horizontally differentiated and where otherwise symmetric firms located in different regions adopt asymmetric strategies – one competing in prices and the other competing in quantities. Uni-directional and intra-industry trade appear endogenously in our framework. We show that as trade costs decline the equilibrium outcome will transition from autarky through a region of uni-directional trade, before intra-industry trade ultimately arises. In the uni-directional trade region, potential market entry by the rival has an impact on firm behavior even though the rival is not exporting. The gains from trade are asymmetric in general, due to firms' asymmetric strategies, and sufficient product differentiation is required for trade to welfare dominate autarky especially with one of the trade partners adopting aggressive strategic behavior even when trade is costless.

Keywords: Intra-industry trade; product differentiation; gains from trade; asymmetric strategies (search for similar items in EconPapers)
JEL-codes: F01 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2020-03-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-gth, nep-int and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:20/06

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