Strategic Investment and Trade in an Oligopolistic Setting

Ioana Veronica Alexa (), Simona Valeria Toma () and Daniela Ancuţa Sarpe ()
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Ioana Veronica Alexa: Dunarea de Jos University of Galati, Romania
Simona Valeria Toma: Dunarea de Jos University of Galati, Romania
Daniela Ancuţa Sarpe: Dunarea de Jos University of Galati, Romania

Economics and Applied Informatics, 2013, issue 2, 5-10

Abstract: This paper analyses the international trade dynamics between two countries as a two-player, non-zero sum, cooperative game. The reason behind this type of approach is that we consider game theory as an important instrument for the analysis of international trade dynamics. The model that we develop in this paper follows the multi-sectorial general-equilibrium model of oligopoly and trade. We will analyze the case where trade takes place because of oligopolistic interaction and comparative advantage. Even though we follow the general framework, the main departure from the existing models on the subject is that in our model both labor and capital are used in production and that the firms have a choice between specializing in labor or capital-intensive goods by choosing weather or not to invest in capital and therefore use two factors of production. As required by a general equilibrium model, we will try to establish an equilibrium on both labor and capital markets and we will try to determine the labor and capital intensity in both countries as well as the equilibrium level of the wage and rental rate.

Keywords: International trade; Strategic investment; Oligopoly; Cournot competition (search for similar items in EconPapers)
JEL-codes: F10 F13 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ddj:fseeai:y:2013:i:2:p:5-10

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