Free Trade vs. Autarky in an Asymmetric Cournot World
29 Pages Posted: 11 Jan 2013 Last revised: 27 Jan 2014
Date Written: November 2013
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: Suggested Citation