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Voluntary Export Restraints in a Trade Model with Sticky Price: Linear and Nonlinear Feedback Solutions

Luca Lambertini () and Arsen Palestini ()
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Arsen Palestini: University of Rome “La Sapienza”

Dynamic Games and Applications, 2018, vol. 8, issue 3, 507-518

Abstract: Abstract We revisit the adoption of voluntary export restraints (VERS) in the differential Cournot game with sticky price and intraindustry trade by Dockner and Haug (Can J Econ 3:679–685, 1991). The analysis relies on linear and nonlinear feedback strategies, to encompass the special cases considered in Fujiwara (Aust Econ Pap 49:101–110, 2010). We show that a VER may arise in correspondence of any free trade equilibrium generated by feedback information, when the intensity of competition is at least as strong as under open-loop information. The adoption of a VER by a foreign firm also benefits the domestic firm, yielding an outcome which has a definite collusive flavour. The foreign firm’s incentive to adopt the VER can be interpreted in the light of the dynamic formulation of conjectural variations due to Dockner (J Ind Econ 40:377–395, 2010).

Keywords: Differential games; Intraindustry trade; VER; Conjectural variations (search for similar items in EconPapers)
JEL-codes: C73 D43 F12 L13 (search for similar items in EconPapers)
Date: 2018
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