Intra-Industry Trade with Bertrand and Cournot Oligopoly: The Role of Endogenous Horizontal Product Differentiation

James Brander and Barbara Spencer

No 21008, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. Firms differentiate their products to mitigate competition, but only if the investment required is not too high. Investment in product differentiation takes place in a much wider range of cases and results in a greater difference between products under Bertrand than Cournot competition. In our model, trade in homogeneous products never takes place under Bertrand competition: Bertrand firms export only if they differentiate their products. Cournot firms may trade in either homogeneous or differentiated products. If there is trade, consumers tend to be better off with Bertrand than Cournot competition due to greater product differentiation and more aggressive pricing, but higher levels of investment can raise Bertrand profit above Cournot profit and also above the monopoly profit at autarky when investment costs are sufficiently low.

JEL-codes: F12 L1 L13 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-int
Note: ITI
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Citations: View citations in EconPapers (21)

Published as Brander, James A. & Spencer, Barbara J., 2015. "Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation," Research in Economics, Elsevier, vol. 69(2), pages 157-165.

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Journal Article: Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation (2015)
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