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Journal of Economic Integration 2005 June;20(2) :294-317.
DOI: https://doi.org/10.11130/jei.2005.20.2.294
Trading Blocs and Market Performance under Duopolistic Competition
R. Scott Hacker and 
Qaizar Hussain 
Jönköping International Business School, Jönköping, Sweden
International Monetary Fund
Copyright ©2005 Journal of Economic Integration
ABSTRACT

This paper uses a three-country duopoly model to examine the effects of lowered trade barriers when a new entrant joins a trading bloc. There are two firms - a small-country firm and a large-country firm within the bloc - and three markets -two within and one (new entrant) outside the bloc. The results from trade bloc expansion vary for when marginal cost is falling with respect to output, but are clear when marginal cost is rising. In the latter case, profits improve more for the small-country firm than for the large-country firm. Consequences on prices, production, and trade are also considered.

JEL Classifications: F15, F10, D43, D60

Keywords: Trading Blocs | Trade Barriers | Trade Expansion | Duopoly | Oligopoly | Tariffs | Preferential Trade Arrangement
 
REFERENCE
1. Widgrén, M. (1994a) "Voting Power in the EC Decision Making and the Consequences of Two Different Enlargements," European Economic Review 38, 1153-1170
2. Brander, J. (1981) Intra-industry Trade in Identical Commodities, Journal of International Economics, 11, 1-14
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Trading Blocs and the Trading System: The Services Dimension  1995 March;10(1)
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