Elimination of Firm and Welfare under International Oligopoly

Abstract

In the voluminous literature on international oligopoly, there is a wide variety of model structures, and a wide range of issues have been addressed. Different models make different assumptions about how total demand is distributed across countries and about the nature of oligopolistic interdependence. Moreover, whereas some models assume segmentation of international commodity markets, others do not. Some authors assume the number of firms in each country to be fixed; others consider free entry and exit of firms, so that the number of firms is endogenous. The diversity is too great to describe in detail here. Because of this diversity, as is clear from the discussions in Helpman (1984) and Helpman and Krugman (1985, 1989), there are no general results on policy implications in this literature: the results are sensitive to the structure of models. For example, Eaton and Grossman (1986) have shown that the rate of optimal export subsidy can be either positive or negative depending on the nature of oligopolistic interdependence.