Export restraints in a dominant firm oligopoly

Abstract

This note examines the effects of foreign output restraints in a homogeneous product oligopoly with a dominant domestic firm. Both the domestic firm and the foreign firm gain from a restraint on foreign output if the foreign firm's reaction function is negatively sloped. The foreign firm would consider offerring an output restraint voluntarily. However, in the case when the foreign firm's reaction function is upward sloping, a foreign output restraint increases the market output, lower the market price, increases the domestic firm's profit and lower the foreign firm's profit. The imposition of a quota would raise output sold in the domestic market.