Export Restraints in a Dominant Firm Oligopoly

Export Restraints in a Dominant Firm Oligopoly

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.