Reciprocal Dumping with Product Differentiation

This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that intra‐industry trade, i.e. “reciprocal dumping,” can result in lower total surplus than autarky in a Cournot model for any degree of product differentiation. More...

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Bibliographic Details
Published in:Review of international economics 2008-11, Vol.16 (5), p.942-954
Main Authors: Friberg, Richard, Ganslandt, Mattias
Format: Article
Language:English
Subjects:
Dumping
Economic theory
Imperfect competition
International economics
International trade
Oligopoly
Product differentiation
Studies
Trade models
Welfare costs
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Summary:This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that intra‐industry trade, i.e. “reciprocal dumping,” can result in lower total surplus than autarky in a Cournot model for any degree of product differentiation. Moreover, trade can reduce welfare compared to autarky in a Bertrand model when the local markets are sufficiently competitive and products are sufficiently close substitutes. Otherwise it unambiguously increases welfare.
ISSN:0965-7576
1467-9396
DOI:10.1111/j.1467-9396.2008.00758.x