Working Paper: NBER ID: w2665
Authors: Shmuel Benzvi; Elhanan Helpman
Abstract: We propose a new solution concept for a game among oligopolists that simultaneously compete in several segmented markets. The motivation for this solution comes from international trade, but it also has applications in other areas. It is based on a three-stage extension of the two-stage Kreps-Scheinkman game. We show that two-way trade is not an equilibrium outcome and that there exist bounds on possible cross-market priced differentials that are defined by transport costs. Prices are the same when transport costs are zero. In fact, in the limiting case of zero transport costs the equilibrium coincides with a Cournot equilibrium in a single integrated market. In the presence of transport coats there nay exist multiple equilibria.
Keywords: Oligopoly; Segmented Markets; International Trade
JEL Codes: D43; F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Transport costs (L91) | Pricing strategies (D49) |
| Market segmentation (M31) | Firm behavior (D21) |
| Transport costs (L91) | Market behavior (D40) |
| Firm strategies (L21) | Market segmentation (M31) |
| Equilibrium outcomes in segmented markets (D52) | Equilibrium outcomes in integrated markets (D52) |