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Why Voluntary Export Restraints Are 'Voluntary'

By: Material type: ArticleArticleLanguage: English Publication details: Wiley-Blackwell, 1985. USA :ISSN:
  • 0008-4085
  • 1540-5982 (Online)
Subject(s): In: Canadian Journal of Economics vol. 18, no 4, p. 799-809Summary: The paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint (VER) upon an importing firm. A VER set at the free trade level of imports is shown to raise the profits of all firms within the industry. The result follows as the imposition of a VER upon a free trade Nash price competition, forces the domestic firm to become an industry price leader. The VER raises industry prices by facilitating collusion and lowers consumer welfare.
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The paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint (VER) upon an importing firm. A VER set at the free trade level of imports is shown to raise the profits of all firms within the industry. The result follows as the imposition of a VER upon a free trade Nash price competition, forces the domestic firm to become an industry price leader. The VER raises industry prices by facilitating collusion and lowers consumer welfare.

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