Monopoly, Tying and Reciprocity: An Application to International Trade

Dalia Marin

No 609, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper sees countertrade as a means by which the PCPEs (previously centrally planned economies) and LDCs extract some of the monopoly profits from firms in OECD countries to subsidize their exports. Viewed in this way, countertrade is an exchange of market entry for marketing assistance in which the PCPEs and LDCs effectively shift the terms of trade in their favour. Based on a new sample of 230 countertrade contracts, which have been signed between firms in OECD countries and PCPEs and LDCs in the period between 1984 and 1988, the paper estimates the likelihood of such terms-of-trade change as a function of the market power of OECD firms, the extent to which goods offered by the PCPEs/LDCs in the contract reflect comparative advantage, and the information available in the bargaining over the terms of the contract. The data are consistent with the view that countertrade is used by the PCPEs/LDCs as a vehicle to reduce the effective price of their imports. Since it is equivalent to an import tax cum export subsidy in the presence of foreign market power, countertrade raises the welfare of the PCPEs/LDCs by allowing them to recapture some of the monopoly rents the OECD firms are extracting from their consumers in PCPEs/LDCs.

Keywords: Countertrade; Eastern Europe; Reciprocity; Strategic Trade Policy (search for similar items in EconPapers)
JEL-codes: F12 F13 P42 (search for similar items in EconPapers)
Date: 1991-11
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=609 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:609

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... pers/dp.php?dpno=609

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().