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Free Trade versus Autarky under Asymmetric Cournot Oligopoly
Author(s) -
Amir Rabah,
Jin Jim Y.,
Tröge Michael
Publication year - 2017
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/roie.12257
Subject(s) - autarky , cournot competition , economics , oligopoly , free trade , economic surplus , welfare , microeconomics , competition (biology) , gains from trade , free entry , international economics , market economy , ecology , biology
Abstract The paper compares free trade with autarky in an asymmetric multi‐country world under Cournot competition with constant returns to scale and linear demand. We derive respective conditions under which free trade will hurt a country's consumers, benefit its firms, induce it to export, increase its output and raise its welfare. We show that these conditions are linked in a clear order, with one implying the next. We further demonstrate that free trade can reduce world total output and total consumer surplus as well as world welfare. Along the way, we correct several oversights in the literature.