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 dumping is shown to be possible for a fairly general specification of firm behaviour. The welfare effects of this seemingly pointless trade are ambiguous. On the 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 unambiguously beneficial.
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