VERs and Price Undertakings under the WTO*

Michael Moore

Review of International Economics, 2005, vol. 13, issue 2, 298-310

Abstract: Under the rules of the WTO, governments are prohibited from negotiating voluntary export restraints (VERs) but may negotiate price undertakings (i.e. import price minima). While these two policies can have identical effects in models of perfect competition, they can have very different economic consequences with imperfect competition. The model presented here shows that in a model of international Bertrand duopoly, a VER can result in lower domestic prices and profits than a price minimum regime. This suggests that price undertakings should also be prohibited under the WTO.

Date: 2005
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