Hostname: page-component-848d4c4894-pftt2 Total loading time: 0 Render date: 2024-06-05T21:00:42.553Z Has data issue: false hasContentIssue false

Gains and losses from unilateral free trade under oligopoly

Published online by Cambridge University Press:  17 August 2016

David R. Collie*
Affiliation:
Cardiff Business School, University of Wales
Get access

Summary

This paper analyses unilateral trade liberalisation in a Cournot duopoly model where the domestic and the foreign firm have different marginal costs. There are three results in the paper. Firstly, with linear demand, it is shown that the domestic country will lose as a result of unilateral free trade unless the foreign firm has a significant cost advantage. Secondly, it is shown that a sufficient condition for there to be gains from unilateral free trade is that the domestic firm is so uncompetitive that it ceases production under free trade. This result is generalised to the case of a Cournot oligopoly with non-linear demand. Thirdly, it is shown that there will always be gains from unilateral free trade with constant elasticity demand functions whatever the elasticity of demand or the relative costs of the domestic and foreign firms.

Résumé

Résumé

Cet article étudie la libéralisation unilatérale du commerce dans le cadre d’un modèle de Cournot où les firmes des différents pays ont des coûts marginaux différents. Cet article contient trois résultats. Premièrement, avec des fonctions de demandes linéaires, il est montré que la firme nationale serait perdante lors d’une libéralisation unilatérale du commerce, à moins que la firme étrangère ait un avantage en coût significatif. Deuxièmement, il est montré qu’une condition suffisante pour que la libéralisation unilatérale du commerce soit bénéfique est que la firme nationale soit tellement non-compétitive qu’elle cesse toute activité lors du libre échange. Ce résultat est généralisé aux cas avec des fonctions de demandes non linéaires. Troisièmement, il est montré que la libéralisation unilatérale du commerce est toujours avantageuse dans le cas où la demande a une élasticité constante, et ce quelque soit sa valeur et peu importe l’écart relatif entre les coûts des différentes firmes.

Type
Research Article
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1996 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

(*)

I would like to thank two anonymous referees for their helpful comments and suggestions. I am responsible for any errors that remain.

References

REFERENCES

Anderson, S.P., Donsimoni, M.P. and Gabszewicz, J.J. [1989], Is international trade profitable to oligopolistic industries?, International Economic Review, 30(4), pp. 725733.Google Scholar
Brander, J.A. [1981], Intra-industry trade in identical commodities, Journal of International Economics, 11(1/2), pp 114.Google Scholar
Brander, J.A. and Krugman, P.R. [1983], A reciprocal dumping model of international trade, Journal of International Economics, 15(3/4), pp. 313321.Google Scholar
Cordella, T. [1993], Trade liberalization and oligopolistic industries: a welfare appraisal, Recherches Economiques de Louvain, 59(3), pp. 355363.Google Scholar
Helpman, E. and Krugman, P.R. [1985], Market Structure and Foreign Trade, Cambridge, MA, MIT Press.Google Scholar
Markusen, J.R. [1981], Trade and gains from trade with imperfect competition, Journal of International Economics, 11(3/4), pp. 531551.Google Scholar
Venables, A.J. [1985], Trade and trade policy with imperfect competition: the case of identical products, Journal of International Economics, 19(1/2), pp. 119.Google Scholar