Asymmetric entry equilibrium in a symmetric trading oligopoly
preprintposted on 29.08.2014, 10:53 by Huw Edwards
We examine the R&D and export decisions of two ex ante symmetric firms in symmetric countries, with both unit trade costs and fixed entry costs to the export market. When both trade costs are low, there will be a symmetric, cross-hauling duopoly, but if fixed costs are fairly high, unit trade costs are low and R&D is relatively cheap, there will be an asymmetric entry equilibrium, in which the exporting firm carries out higher R&D, has lower costs and larger profits. With higher R&D costs and/or higher unit trade costs, there will also be a zone where crosshauling duopoly and non-trading are simultaneously Nash equilibria.
- Business and Economics