Strategic trade policy under asymmetric oligopoly

Abstract

Models of trade policy under oligopoly usually assume symmetry, in each country all firms are identical, but this paper analyses trade policy under asymmetric oligopoly. It is shown that under asymmetric oligopoly trade policy has a rationalisation effect which does not occur under symmetric oligopoly. The size of the rationalisation effect depends upon the convexity of demand and the variation of industry output. The rationalisation effect may strengthen or weaken the argument for strategic trade policy.