Gains from Variety? Product Differentiation and the Possibility of Losses from Trade under Cournot Oligopoly with Free Entry
No E2016/3, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section
In a free-entry Cournot oligopoly model with a quadratic utility function that yields differentiated products, it is shown that there are losses from trade when the trade cost is close to the prohibitive level. Although the total number of varieties increases, there is a reduction in consumer surplus. This occurs because trade leads to an increase in imported varieties where consumer surplus is low due to the high trade cost and a decrease in domestically-produced varieties where consumer surplus is high. This result is in contrast with results from the free-entry Cournot oligopoly models with homogeneous products of Brander and Krugman (1983) and Venables (1985); the monopolistic competition models such as Krugman (1980) and Venables (1987), and heterogeneous firm models such as Melitz (2003) and Melitz and Ottaviano (2008).
Keywords: Gains from Trade; Trade Liberalisation; Free Entry; Cournot Oligopoly; Product Variety (search for similar items in EconPapers)
JEL-codes: F12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-int and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: Gains from variety? Product differentiation and the possibility of losses from trade under Cournot oligopoly with free entry (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2016/3
Access Statistics for this paper
More papers in Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section Contact information at EDIRC.
Bibliographic data for series maintained by Yongdeng Xu ().