David R Collie

Cardiff University | CU · Cardiff Business School

In a free-entry Cournot oligopoly model with a quadratic utility function that yields differentiated products, it is shown that there are losses from trade when the trade cost is close to the prohibitive level. Although the total number of varieties increases, there is a reduction in consumer surplus. This occurs because trade leads to an increase...

This paper analyses how product differentiation affects the volume of trade under duopoly using Shubik-Levitan demand functions rather than the Bowley demand functions used by Bernhofen (2001). The Shubik-Levitan demand functions have the advantage that an increase in product differentiation does not increase the size of the market as happens with...

Conditions for the occurrence of immiserizing growth and the Metzler paradox are analysed in the Ricardian model when consumers in the foreign country have Leontief preferences while consumers in the home country have Cobb-Douglas preferences. By using specific functional forms, the conditions for the occurrence of the two paradoxes are defined in...

A paradox in international trade is that multilateral trade liberalisation has resulted in increases in both the volume of world trade and the amount of foreign direct investment (FDI). This note presents a Cournot duopoly model with two regions, each consisting of two countries, and with an inter-regional transport cost. It is shown that multilate...

In a symmetric infinitely-repeated game, where players have constant relative risk aversion (CRRA), or constant elasticity of intertemporal substitution, utility functions, it is shown that the critical discount factor required to sustain full cooperation is decreasing in the coefficient of relative risk aversion (increasing in the elasticity of in...

Welfare with the maximum‐revenue tariff is compared to free‐trade welfare under Cournot duopoly with differentiated products; under Bertrand duopoly with differentiated products; and under perfect competition in the case of a large country able to affect its terms of trade. Under Cournot duopoly and Bertrand duopoly, assuming linear demands and con...

Taxation under oligopoly is analyzed in a general equilibrium setting where the firms are large relative to the size of the economy and maximize the utility of their shareholders. Assuming that preferences are either identical and homothetic or identical and quasi‐linear, then the oligopoly model is an aggregative game, which greatly simplifies the...

Assuming constant marginal cost, it is shown that a switch from specific to ad valorem taxation that results in the same collusive price has no effect on the critical discount factor required to sustain collusion. This result is shown to hold for Cournot oligopoly when collusion is sustained with Nash-reversion strategies or optimal-punishment stra...

In a Bertrand duopoly model, it is shown that an antidumping regulation can be strategically exploited by the home firm to reduce the degree of competition in the home market. The home firm commits not to export to the foreign market which gives the foreign firm a monopoly in its own market. As a result the foreign firm will increase its price allo...

Freeman (2006 ) suggested that auctioning immigration visas and redistributing the revenue to native residents in the host country would increase migration from low-income to high-income countries. The effect of the auctioning of immigration visas, in the Ricardian model from Findlay (1982 ), on the optimal level of immigration for the host country...

The result of Colombo and Labrecciosa [Colombo, Luca and Labrecciosa, Paola (2006). 'The suboptimality of optimal punishments in Cournot supergames', Economics Letters 90, pp. 116-121.] that optimal punishments are inferior to Nash-reversion trigger strategies with decreasing marginal costs is shown to be due to the output when a firm deviates from...

A two-country model of the FDI versus export decisions of firms is analysed. The analysis considers both the Cournot duopoly and the Bertrand duopoly models with differentiated products. It is shown that the static game is often a prisoners' dilemma where both firms are worse off when they both undertake FDI. To avoid the prisoners' dilemma, in an...

In the Eaton and Grossman (1986 ) Bertrand duopoly model of strategic export taxes, both countries may be better off if they both delegate to policymakers who maximize tax revenue rather than welfare. However, both countries delegating to policymakers who maximize tax revenue is not a Nash equilibrium unless the degree of product substitutability i...

In the Eaton and Grossman Quarterly Journal of Economics, 101 (1986), pp. 383-406 model of export taxes under Bertrand duopoly, it is shown that welfare in the Nash equilibrium in export taxes is always higher than welfare under free trade for both countries.

Freeman (2006) suggested that auctioning immigration visas and redistributing the revenue to native residents in the host country would increase migration from low-income to high-income countries. The effect of the auctioning of immigration visas, in the Ricardian model from Findlay (1982), on the optimal level of immigration for the host country i...

The Byrd amendment to US anti-dumping law distributes the revenue from anti-dumping duties imposed on foreign firms to the domestic firms that lodged the complaint of dumping. This paper shows that the presence of the Byrd Amendment can yield lower duties and greater welfare than in its absence. This result holds when the US government puts a suffi...

In a game between two exporting countries, both countries may be better off if they both delegate to policymakers who maximise tax revenue rather than welfare. However, both countries delegating to policymakers who maximise revenue is not necessarily a Nash equilibrium. The game may be a prisoner's dilemma where both countries are better off delega...

This article derives the maximum-revenue tariff and the optimum-welfare tariff under Bertrand duopoly with differentiated products. It is shown that both tariffs are lower under Bertrand duopoly than under Cournot duopoly. Also, the optimum-welfare tariff may exceed the maximum-revenue tariff under both Bertrand duopoly and Cournot duopoly. This re...

This article analyses export taxes in a Bertrand duopoly with product differentiation, where a home and a foreign firm both export to a third-country market. It is shown that the maximum-revenue export tax always exceeds the optimum-welfare export tax. In a Nash equilibrium in export taxes, the country with the low cost firm imposes the largest exp...

The analysis of collusion in infinitely repeated duopoly games has generally assumed that marginal cost is constant, but this note uses quadratic costs (linear marginal costs) to compare the sustainability of collusion under Bertrand and Cournot duopoly with differentiated products. It is shown that when marginal costs are sufficiently increasing i...

This paper analyses the welfare effects of ad valorem and specific trade policy instruments (import tariffs and production subsidies) under asymmetric Cournot oligopoly and then compares the efficiency of ad valorem with specific instruments. It is shown that these trade policy instruments have rationalization effects similar to those in Collie (Eu...

In this paper we analyze a country's optimal trade policy when its labor market is unionized and firms are footloose. We show that an important objective for governments to use import protection is to prevent their domestic multinationals to go to a non-unionized location abroad and to serve their country from a distance. A domestic government will...

This paper analyzes possible incidences of Turkish EU accession on the emigration from Turkey to the European Union. Panel data estimators are applied on the emigration data from EU-18 into Germany in order to construct possible future scenarios of Turkish migration to the EU. Eventual migration flows from Turkey into the EU are forecasted based on...

The Byrd amendment to US anti-dumping law distributes the revenue from anti-dumping duties imposed on foreign firms to the domestic firms that lodged the complaint of dumping. When the government sets its anti-dumping duty to maximise a welfare function that attaches greater weight to the profits of the domestic industry than to consumer surplus or...

In contrast to conventional wisdom, as formalised by Rothschild (1999), it is shown that cost asymmetries do not make sustaining collusion more difficult. Unlike Rothschild (1999), where the cartel is assumed to maximise total-industry profits, in this paper the cartel can allocate output quotas to ensure that collusion is viable and sustainable in...

The analysis of collusion in infinitely repeated Cournot oligopoly games has generally assumed that demand is linear, but this note uses constant-elasticity demand functions to investigate how the elasticity of demand affects the sustainability of collusion.

In the literature on the welfare effects of free trade under imperfect competition, one important case seems to have been overlooked, and that is the Bertrand duopoly model with differentiated products. Although many authors have analysed the welfare effects of free trade under Cournot duopoly and demonstrated the possibility of losses from trade,...

In the Brander and Spencer model [J. Int. Econ. 18 (1985) 83–100], it is shown that the absolute value of the export subsidy/tax given by the country with low cost firm is larger than that given by the country with the high cost firm.

For an oligopolistic industry, the effects of mergers on the domestic country"s optimal trade policy are analyzed. If the domestic country pursues an optimal trade policy then it will always lose as a result of a foreign merger. The optimal domestic response to a foreign merger is to decrease (increase) the tariff if demand is concave (convex) and...

In this Paper we study the location behaviour of a foreign and a domestic footloose firm competing in output in the domestic product market. Both firms produce a homogenous good using a labour intensive technology. While the domestic country is unionized, the foreign country is not. Location equilibria are studied as a function of the foreign wage...

In 1996, the British Government was accused of a protectionist "buy British" campaign when it awarded a contract for army ambulances to Land Rover. We present a model where the procurement decision of the government affects the perception of consumers in the rest of the world about the quality of the domestic firm's product relative to that of a fo...

The prohibition of state aid in an integrated market such as the European Community is analysed in a model where firms produce differentiated products and market structure is either Coumot or Bertrand oligopoly. State aid is financed by distortionary taxation so the opportunity cost of government revenue exceeds unity. Under both Coumot and Bertran...

The effect of prohibiting state aid in an integrated market is analysed in a symmetric Cournot oligopoly model where one firm is located in each member state. Subsidies are financed by distortionary taxation so there is a trade-off between the deadweight loss from the oligopolistic distortion and that from distortionary taxation. It is shown that t...

This article presents a model that provides an economic rationale for multilateral agreements, such as the WTO, that prohibit export subsidies. The model is a multicountry version of the well-known Brander and Spencer (Journal of International Economics (1985) 18, 83–100) analysis of profit-shifting export subsidies, with the addition of an oppor...

A model of strategic trade policy under integrated markets is presented and optimal trade policies are derived under assumptions of both complete and incomplete information. With the assumption of complete information it is shown that the optimal policy is an import tariff (export subsidy) when a coun - try is a net importer (exporter). In the Nash...

In this paper, a domestic and a foreign firm compete as Cournot duopolists in the domestic market. The foreign firm has incomplete information about the costs of the domestic firm, but the domestic government and the domestic firm are completely informed. It is shown that the domestic government can use its tariff to signal about the costs of the d...

This note suggests a trade policy instrument to be used in a homogeneous product Bertrand duopoly with integrated markets. In contrast to previous analyses, there exists a pure strategy Nash equilibrium in prices when this trade policy instrument is used.

Using the Romer [Romer, P., 1994. New goods, old theory, and the welfare costs of trade restrictions. J. Dev. Econ., 43, 5–38.] model of trade policy and product variety, this note shows that a voluntary export restraint (VER) may be superior to an equivalent tariff that results in the same volume of total imports. The explanation for this counteri...

This paper considers the effect of exogenous trade bloc enlargement in a multi-country version of the Brander-Spencer export subsidy game. In the single-shot game, it is shown that trade bloc enlargement leads to a reduction in the Nash equilibrium export subsidies and thereby increases the welfare of the exporting countries. Although the welfare o...

In a trade policy game where the domestic government uses a tariff and the foreign government uses an export subsidy, it is shown that the domestic government should delegate to a policy-maker who attaches less weight to the profits of the domestic firm than the welfare maximizing government. This makes domestic trade policy less aggressive and inc...

This paper analyses unilateral trade liberalisation in a Cournot duopoly model where the domestic and the foreign firm have different marginal costs. There are three results in the paper. Firstly, with linear demand, it is shown that the domestic country will lose as a result of unilateral free trade unless the foreign firm has a significant cost a...

This paper analyses the effect of retaliation with countervailing tariffs on the profit shifting argument for export subsidies. When the domestic country pursues a policy of laissez-faire it may be harmed by a foreign export subsidy. However, when the domestic country pursues an optimal trade policy it will always gain from a foreign export subsidy...

Endogenous Timing in Trade Policy Games: Should Governments Use Countervailing Duties? - Trade policy under oligopoly is analysed in two multistage games with endogenous timing of trade policy. At the beginning of the games, the domestic and foreign governments choose whether to set trade policy at stage one or two. It is shown that in the subgame...

This paper analyzes trade wars and the sustainability of free trade in the J. A. Brander and B. J. Spencer (1985) model of profit-shifting export subsidies. It is shown that both countries will usually be worse-off if there is a trade war than under free trade but that one country may be better-off if its firm is very competitive. In an infinitely...

Models of trade policy under oligopoly usually assume symmetry, in each country all firms are identical, but this paper analyses trade policy under asymmetric oligopoly. It is shown that under asymmetric oligopoly trade policy has a rationalisation effect which does not occur under symmetric oligopoly. The size of the rationalisation effect depends...

In a Cournot duopoly model of international competition between a domestic and foreign firm, it is shown that when the foreign firm has incomplete information about the marginal cost of the domestic firm then the domestic government can use an export subsidy to signal the competitiveness of its firm. This signaling effect strengthens the usual prof...

In this Cournot oligopoly model, a number of incumbent foreign firms face the potential entry of domestic firms. When there is no retaliation by the domestic country, the optimal foreign policy is to subsidize exports so that no domestic firms will enter the industry and the foreign firms capture the entire market. However, when the domestic countr...

We develop and implement a collocation method to solve for an equilibrium in the dynamic legislative bargaining game of Duggan and Kalandrakis (2008). We formulate the collocation equations in a quasi-discrete version of the model, and we show that the collocation equations are locally Lipchitz continuous and directionally differentiable. In numeri...

This paper proves the existence and uniqueness of Cournot equilibrium in models of international trade under oligopoly. The existence of Cournot equilibrium is established without the usual assumption that profit functions are concave. Instead the proof uses a weaker "aggregate concavity" condition. A simple proof is used to establish the uniquenes...

This paper points out an error in a recent paper by Dixit (1988). He claims that when there is no domestic production a fully countervailing duty is optimal. It is shown here that only a partially countervailing duty is optimal.

A well-known proposition in conventional trade theory, H. G. Johnson (1951-52), is that the maximum revenue tariff exceeds the optimum welfare tariff. The purpose of this paper is to show that under oligopoly the optimum welfare tariff may exceed the maximum revenue tariff due to the profit-shifting effect. Copyright 1991 by Scottish Economic Socie...

This thesis analyses the effect of retaliation with countervailing tariffs and/or production subsidies on the strategic argument for export subsidies, and also proves the existence and uniqueness of equilibrium in the standard model of international trade under oligopoly. Retaliation will be modelled as a multistage game. At the first stage, the fo...

This paper analyses how retaliation affects the profit-shifting argument for export subsidies. At the first stage the foreign country sets its export subsidy and then at the second stage the domestic country sets its tariff and/or production subsidy. It is shown that if the domestic country pursues an optimal trade policy, then it will always gain...

A major attraction of strategic trade theory is that it appears to explain governments' desire to subsidise exports. We argue that this appearance is illusory.

This paper uses a Cournot oligopoly model to resolve the conflict between the theory, which predicts that a reduction in trade costs discourages foreign direct investment (FDI), and the empirical evidence, which is that trade liberalisation has led to an increase in FDI. It also shows that both FDI and exporting can co-exist in the same market, eve...