A Graphical Examination of an Importer/Exporter Oligopoly Trade Model

Market power considerations in international trade have income distribution effects among countries that can influence the position a country takes with respect to trade negotiations. Since models that examine a single country mask these distributional effects, it is important to consider more than one country in trade models. While the contribution of this paper is largely to the pedagogical foundation of agricultural economics in showing how models with two countries can be analyzed graphically - thereby opening this part of the literature up to a wider audience - the analysis also reinforces a point that is missed in models focusing on a single country. By showing under what conditions a country may prefer to use domestic policies even when this causes other countries to retaliate, the paper highlights one of the factors likely to be important in determining the success of international trading arrangements such as GATT.