Free Trade vs. Autarky in an Asymmetric Cournot World

29 Pages Posted: 11 Jan 2013 Last revised: 27 Jan 2014

See all articles by Michael Troege

Michael Troege

ESCP-Europe

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Jim Y. Jin

University of St. Andrews - School of Management

Date Written: November 2013

Abstract

The paper first demonstrates that in a simple asymmetric n-country world with Cournot competition, constant returns and linear demand, free trade can reduce world welfare as well as total output and consumer surplus. We then derive precise conditions for free trade to raise a country’s welfare, consumer surplus, profits etc. and demonstrate how these conditions are linked in a clear order. We also show that free trade always raises the sum of social welfare and consumer surplus in every country. Finally, we show that with symmetric costs or free entry and exit, there are always global gains from free trade.

Keywords: linear oligopoly, free trade, welfare comparison

JEL Classification: F12, F15, D43

Suggested Citation

Troege, Michael and Amir, Rabah and Jin, Jim Y., Free Trade vs. Autarky in an Asymmetric Cournot World (November 2013). Available at SSRN: https://ssrn.com/abstract=2199493 or http://dx.doi.org/10.2139/ssrn.2199493

Michael Troege (Contact Author)

ESCP-Europe ( email )

79, Avenue de Republique
75543 Paris, Cedex 11, 75011
France
33/149232601 (Phone)

Rabah Amir

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Jim Y. Jin

University of St. Andrews - School of Management ( email )

The Gateway
Gateway
St. Andrews, Fife KY16 9SS
United Kingdom

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