Collusion and the elasticity of demand

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.cartel

State aid to investment and R&D

The prohibition of state aid to investment and R&D in an integrated market such as the European Community is analysed in a Cournot oligopoly model where firms undertake investment or R&D to reduce their costs. Both strategic and non-strategic investment and R&D are considered. Governments in the Member States give subsidies for investment and R&D, which are financed by distortionary taxation so the opportunity cost of government revenue exceeds unity. Prohibiting state aid to investment will always increase aggregate welfare. Prohibiting state aid to R&D will always increase aggregate welfare if spillovers from R&D are small. If spillovers from R&D are moderate then there exists a range of values for opportunity cost where governments give state aid and where the prohibition of state aid will increase aggregate welfare. Prohibiting state aid to R&D will reduce aggregate welfare if spillovers from R&D are large.State aid prohibition, Cournot oligopoly model, R&D spillovers, distortionary taxation, Collie, R&D, research and development

Export Taxes under Bertrand Duopoly

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 export tax. The results under Bertrand duopoly are compared with those under Cournot duopoly. It is shown that the absolute value of the export subsidy or tax under Cournot duopoly exceeds the export tax under Bertrand duopoly.

Product Differentiation and the Gains from Trade under Bertrand Duopoly

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, there has been no thorough analysis of the welfare effects of free trade under Bertrand duopoly. This paper presents a thorough analysis of the welfare effects of free trade under Bertrand duopoly with differentiated products, and it is shown that there are always gains from trade.gains from trade, Bertrand Oligopoly

Auctioning immigration visas

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 is considered. It is shown that auctioning immigration visas will lead to a positive level of immigration only if the initial wage difference between the host country and the source country is substantial. The cost of the immigration visa is more than half the earnings of the immigrant worker

Immiserizing growth and the Metzler paradox in the Ricardian model

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 terms of the exogenous parameters of the model rather than endogenous variables such as the elasticity of demand for exports in the conditions of Bhagwati (1958) and Metzler (1949a and b). It is shown that the simultaneous occurrence of both paradoxical results is possible for some parameter values

Maximum-Revenue Tariffs versus Free Trade

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 constant marginal costs, welfare with the maximum‐revenue tariff is always higher than free‐trade welfare. Under perfect competition, assuming linear demand and supply, welfare with the maximum‐revenue tariff will be higher than free‐trade welfare if the country has sufficient market power

Tacit collusion over foreign direct investment under oligopoly

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 infinitely-repeated game, the firms can collude over their FDI versus export decisions. Then, a reduction in trade costs may lead firms to switch from exporting to undertaking FDI when trade costs are relatively high. Also, collusion over FDI may increase welfare