Working Paper No. 638

Reciprocal Dumping with Bertrand Competition

Published: March 16, 2005Pages: 20Keywords: Reciprocal Dumping; Intra-Industry Trade; Oligopoly; Product Differentiation; Transport Costs JEL-codes: F12; F15; L13

Reciprocal Dumping with Bertrand Competition Richard Friberg and Mattias Ganslandt


This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that welfare is a U-shaped function in the transport cost as long as trade occurs in equilibrium. With a Cournot duopoly trade can reduce welfare compared to autarchy for any degree of product differentiation. Under Bertrand competition we show that trade may reduce welfare compared to autarchy, if firms produce sufficiently close substitutes and the autarchy equilibrium is sufficiently competitive. Otherwise it can not.

 

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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