Oligopoly in Segmented Markets

Shmuel Ben-Zvi and Elhanan Helpman

No 2665, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a new solution concept for a game among oligopolists that simultaneously compete in several segmented markets. The motivation for this solution comes from international trade, but it also has applications in other areas. It is based on a three-stage extension of the two-stage Kreps-Scheinkman game. We show that two-way trade is not an equilibrium outcome and that there exist bounds on possible cross-market priced differentials that are defined by transport costs. Prices are the same when transport costs are zero. In fact, in the limiting case of zero transport costs the equilibrium coincides with a Cournot equilibrium in a single integrated market. In the presence of transport coats there nay exist multiple equilibria.

Date: 1988-07
Note: ITI IFM
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Published as Monopolistic Competition and International Trade, MIT Press 1992 G.M. Grossman ed

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