Reciprocal Dumping with Product Differentiation

Richard Friberg and Mattias Ganslandt

Review of International Economics, 2008, vol. 16, issue 5, pages 942-954

Abstract: This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that intra-industry trade, i.e. "reciprocal dumping," can result in lower total surplus than autarky in a Cournot model for any degree of product differentiation. Moreover, trade can reduce welfare compared to autarky in a Bertrand model when the local markets are sufficiently competitive and products are sufficiently close substitutes. Otherwise it unambiguously increases welfare. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd.

Date: 2008

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