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The Loss from Trade under International Cournot Oligopoly with Cost Asymmetry
Author(s) -
Dong Baomin,
Yuan Lasheng
Publication year - 2010
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2010.00894.x
Subject(s) - cournot competition , economics , imperfect competition , oligopoly , welfare , tariff , international economics , deadweight loss , competition (biology) , production (economics) , trade barrier , free trade , international trade , microeconomics , market economy , ecology , biology
This paper examines the efficiency and welfare effects of intra‐industry trade in the presence of imperfect competition and heterogeneous technologies. We show that when a Southern country has a relatively less concentrated industry and faces low demand, the output of the Northern country may contract after initiating trade. Production inefficiencies can outweigh the gain effected by trade‐induced competition and lower price in trade, resulting in a net loss in the global welfare. In some circumstances, voluntary technology transfer, managed trade through VERs, or the introduction of a tariff can improve both trading partners' welfare.