Quotas Under Dynamic Bertrand Competition
31 Pages Posted: 18 Aug 2008 Last revised: 11 Oct 2008
Date Written: August 1, 2008
We present a new model of dynamic Bertrand competition, where a quota is treated as an intertemporal constraint rather than as a capacity constraint as is common in the literature. The firm under a quota then can still vary the rates of exports over time provided that its total sales within the period do not exceed the quota. We show that a quota results in higher prices than a tariff of equal imports. We also show that firms never play mixed strategies, which contrasts from the result from a one-shot game, in which the only equilibrium under a quota is in mixed strategies.
Keywords: Dynamic Bertrand competition, quotas, tariffs, differential game
JEL Classification: F13
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