A 'Reciprocal Dumping' Model of International Trade

17 Pages Posted: 19 Feb 2004 Last revised: 22 Jul 2013

See all articles by James A. Brander

James A. Brander

University of British Columbia (UBC) - Sauder School of Business

Paul R. Krugman

Princeton University - Woodrow Wilson School of Public and International Affairs; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 1983

Abstract

This paper develops a model in which the rivalry of oligopolistic firms serves as an independent cause of international trade. The model shows how such rivalry naturally gives rise to "dumping" of output in foreign markets, and shows that such dumping can be "reciprocal" -- that is, there may be two-way trade in the same product. Reciprocal dumpingis shown to be possible for fairly general specification of firm behaviour.The welfare effects of this seemingly pointless trade are ambiguous. On one hand, resources are wasted in the cross-handling of goods; on the other hand, increased competition reduces monopoly distortions. Surprisingly,in the case of free entry and Cournot behaviour reciprocal dumping is unanibiuously beneficial.

Suggested Citation

Brander, James A. and Krugman, Paul R., A 'Reciprocal Dumping' Model of International Trade (August 1983). NBER Working Paper No. w1194. Available at SSRN: https://ssrn.com/abstract=305574

James A. Brander (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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Paul R. Krugman

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
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609-258-2809 (Fax)

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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