Abstract
A repeated game version of the basic Brander and Krugman (1983) model is analyzed. In the Brander-Krugman model, rivalry among oligopolistic firms gives rise to international trade. It is now shown that no trade, which is welfare-reducing when transportation costs are negligible, is a strong Nash equilibrium of the supergame. The threat strategies that support ‘no trade’, the discount rate, and the crucial role of transportation costs are discussed, extending the BranderKrugman analysis in a natural way.
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