COURNOT COMPETITION, INTRAINDUSTRY TRADE, AND NONCONSTANCY OF MARGINAL COSTS - A 3-COUNTRY CASE

In this paper we shall develop and investigate a three-country and two-commodity model of international trade with an imperfectly competitive good which is produced under increasing marginal costs by explicitly incorporating intra-industry trade between industrialized countries. The main results we obtain are: (1) the full optimal discriminatory tariffs levied by a third importing country are necessarily positive; (2) the imposition of tariff can cause an increase in intra-industry trade, and therefore (3) under certain conditions the importing country's intervention into the international market can be a Pareto superior policy for the world as a whole as well as for the country.