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    When the threat is stronger than the execution: trade and welfare under oligopoly


    Leahy, Dermot and Neary, Peter (2021) When the threat is stronger than the execution: trade and welfare under oligopoly. RAND Journal of Economics, 52. pp. 471-495. ISSN 0741-6261

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    Abstract

    We compare the effects of changes in trade costs on trade volumes and on the gains from trade under Cournot and Bertrand competition. In both cases, the threshold trade costs below which the possibility of trade affects the domestic firm's behavior is the same; and welfare is U-shaped under reasonable conditions. However, welfare is typically greater under Bertrand competition; for higher trade costs the volume of trade is greater under Cournot competition, implying a “van-der-Rohe Region”; and, for even higher trade costs, there exists a “Nimzowitsch Region”, where welfare is higher under Bertrand competition even though no trade takes place.

    Item Type: Article
    Additional Information: The authors are grateful to the Central Bank of Ireland and the Royal Irish Academy for facilitating this research, and to Mark Armstrong, Volker Nocke, three anonymous referees and the editor for helpful comments. Peter Neary thanks the European Research Council for funding under the European Union's Seventh Framework Programme (FP7/2007-2013), ERC grant agreement no. 295669. © 2021 The Authors. The RAND Journal of Economics published by Wiley Periodicals LLC on behalf of The RAND Corporation This is an open access article under the terms of the Creative Commons Attribution-NonCommercial- NoDerivs License (https://creativecommons.org/licenses/by-nc-nd/3.0/ie/), which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made. Cite as: Leahy, D. and Neary, J.P. (2021), When the threat is stronger than the execution: trade and welfare under oligopoly. The RAND Journal of Economics, 52: 471-495. https://doi.org/10.1111/1756-2171.12380
    Keywords: trade; welfare; oligopoly; Cournot competition; Bertrand competition;
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 14848
    Identification Number: https://doi.org/10.1111/1756-2171.12380
    Depositing User: Dermot Leahy
    Date Deposited: 22 Sep 2021 15:27
    Journal or Publication Title: RAND Journal of Economics
    Publisher: Wiley
    Refereed: Yes
    Funders: Seventh EU Framework Programme
    URI:

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