Quotas and the Stability of Implicit Collusion
41 Pages Posted: 14 Jul 2000
Date Written: June 1986
This paper shows that the imposition of an import quota by one countrycan lead to increased competitiveness; protection can reduce the price in thecountry that imposes the quota, the foreign country, or both. This emergesfrom a model in which the firms are assumed to sustain collusion by the threatof reversion to more competitive pricing. We consider both prices andquantities as the strategic variables and study competition both in thedomestic and the foreign market taken individually, and in the two marketstaken together.
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