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When The Threat Is Stronger Than The Execution: Trade Liberalization And Welfare Under Oligopoly

J. Peter Neary () and Dermot Leahy ()

No 775, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Abstract: We compare trade liberalization under Cournot and Bertrand competition in reciprocal markets. In both cases, the critical level of trade costs below which the possibilityof trade affects the domestic firm's behavior is the same; trade liberalization increases trade volume monotonically; and welfare follows a U-shaped pattern. However, welfareis usually greater under Bertrand than Cournot competition, despite the fact that for higher trade costs the volume of trade is greater under Cournot competition. In general,there exists a “Nimzowitsch Region” in parameter space, where welfare is higher under Bertrand competition even though no actual trade takes place.

Keywords: Cournot and Bertrand Competition; Cross-Hauling; Nimzowitsch Region; Oligopoly and Trade; Trade Liberalization (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-int
Date: 2015-12-31
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