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Is International Trade Profitable to Oligopolistic Industries?

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Abstract

The authors examine whether oligopolistic autarkic industries operating in two different countries would gain from the opening of trade. They analyze a wide range of behavioral assumptions (as parameterized by conjectural variations) and a homogeneous products oligopoly for a large class of demand functions. Their findings can be summarized as follows: (1) for any given number of firms in each country's industry, there is always at least one of the two countries where firms make higher profits under autarky than under free trade; and (2) when there are fixed costs and the industry in each country is at its long-run (zero profit) autarkic equilibrium, then all firms in both countries lose from trade. Additional results are derived for the case when the demand sizes of countries can be parameterized in a meaningful way. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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