The Loss from Trade under International Cournot Oligopoly with Cost Asymmetry

Baomin Dong () and Lasheng Yuan

Review of International Economics, 2010, vol. 18, issue 5, 818-831

Abstract: This paper examines the efficiency and welfare effects of intra‐industry trade in the presence of imperfect competition and heterogeneous technologies. We show that when a Southern country has a relatively less concentrated industry and faces low demand, the output of the Northern country may contract after initiating trade. Production inefficiencies can outweigh the gain effected by trade‐induced competition and lower price in trade, resulting in a net loss in the global welfare. In some circumstances, voluntary technology transfer, managed trade through VERs, or the introduction of a tariff can improve both trading partners' welfare.

Date: 2010
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