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Voluntary Export Restraints in a Trade Model with Sticky Price: Linear and Nonlinear Feedback Solutions

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Luca Lambertini at University of Bologna
Luca Lambertini
Arsen Palestini at Sapienza University of Rome
Arsen Palestini
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Abstract and Figures

We revisit the adoption of voluntary export restraints (VERS) in the differential Cournot game with sticky price and intraindustry trade by Dockner and Haug (Can J Econ 3:679–685, 1991). The analysis relies on linear and nonlinear feedback strategies, to encompass the special cases considered in Fujiwara (Aust Econ Pap 49:101–110, 2010). We show that a VER may arise in correspondence of any free trade equilibrium generated by feedback information, when the intensity of competition is at least as strong as under open-loop information. The adoption of a VER by a foreign firm also benefits the domestic firm, yielding an outcome which has a definite collusive flavour. The foreign firm’s incentive to adopt the VER can be interpreted in the light of the dynamic formulation of conjectural variations due to Dockner (J Ind Econ 40:377–395, 2010).
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Dyn Games Appl (2018) 8:507–518
https://doi.org/10.1007/s13235-018-0251-0
Voluntary Export Restraints in a Trade Model with
Sticky Price: Linear and Nonlinear Feedback Solutions
Luca Lambertini1·Arsen Palestini2
Published online: 15 March 2018
© Springer Science+Business Media, LLC, part of Springer Nature 2018
Abstract We revisit the adoption of voluntary export restraints (VERS) in the differential
Cournot game with sticky price and intraindustry trade by Dockner and Haug (Can J Econ
3:679–685, 1991). The analysis relies on linear and nonlinear feedback strategies, to encom-
pass the special cases considered in Fujiwara (Aust Econ Pap 49:101–110, 2010). We show
that a VER may arise in correspondence of any free trade equilibrium generated by feedback
information, when the intensity of competition is at least as strong as under open-loop infor-
mation. The adoption of a VER by a foreign firm also benefits the domestic firm, yielding
an outcome which has a definite collusive flavour. The foreign firm’s incentive to adopt the
VER can be interpreted in the light of the dynamic formulation of conjectural variations due
to Dockner (J Ind Econ 40:377–395, 2010).
Keywords Differential games ·Intraindustry trade ·VER ·Conjectural variations
JEL Classification C73 ·D43 ·F12 ·L13
1 Introduction
The impact and desirability of output restrictions has been lively discussed in the literature
on intraindustry trade, from two main standpoints. The first, at least since Bhagwati [2]and
Shibata [26], considers the equivalence between tariffs and quotas (see also [17,18]; and
We would like to thank two anonymous referees for precious comments and suggestions. The usual
disclaimer applies.
BLuca Lambertini
luca.lambertini@unibo.it
Arsen Palestini
arsen.palestini@uniroma1.it
1Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy
2MEMOTEF, University of Rome “La Sapienza”, Via del Castro Laurenziano 9, 00161 Rome, Italy
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
... Cellini and Lambertini (2007) considered the duopoly market with different commodities and sticky prices, and established a differential game model competing in the quantities with each other, and further analyze the difference between the feedback and open-loop Nash equilibrium under steady state. Lambertini and Palestini (2018) investigated the adoption of voluntary export restraints (VERSs) in the differential Cournot game with sticky price. The primary difference between this stream of literature and our paper is that we investigate the impacts of players' myopic and farsighted behavior on the pricing strategy and R&D strategy. ...
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