Trade liberalization in oligopolistic industries

Abstract

This paper analyzes the short- and long-run effects on domestic price and output of partially liberalizing quota restrictions in a general model of oligopolistic interactions. It is shown that perverse outcomes are possible in a number of cases, including that of rational conjectures. A larger quota may result in an increase in domestic output in the short run and a higher price in the long run. The relationship between oligopolistic conjectures and the number of firms in the industry is critical in determining the long-run outcome.

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