Trade Liberalization and Oligopolistic Industries: A Welfare Appraisal

Abstract

Summary If intra-industry trade liberalisation increases ”world” welfare, it is nevertheless true that one country should be better off in autarky. The crucial parameters for evaluating the convenience of liberalizing intra-industry trade are the relative dimensions of domestic and foreign market and industry. The prescription of free trade as a unilateral option is valid only if foreign competition is very strong, and only in this case consumers' gains offset producers' losses. If policy makers play a non-cooperative game in trade policies, free trade cannot be a Nash equilibrium of the game.

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