2002), “Export Restraints in a Model of Trade with Capital Accumulation

Abstract. This paper examines the impact of voluntary export restraints (VERs) in an international duopoly modelled as a di¤erential game. We employ two well known capital accumulation dynamics for …rms, due to Nerlove and Arrow and to Ramsey, respectively. First we investigate Cournot behaviour, showing that, in both models, a VERs cannot be ‘voluntarily ’ employed by the foreign …rm. Our analysis therefore suggests that the empirical observation of VERs corresponds to their use either as coordinating or as quasi-collusive devices in markets where …rms are price setters and sales are not capacity-constrained. This is con…rmed by our analysis of price competition. The Bertrand steady state of the Solow-Nerlove-Arrow model coincides with the Cournot equilibrium, and therefore the foreign …rm cannot be expected to voluntarily adopt an export restraint. However, the opposite holds in the case of price behaviour in the Ramsey setting, where the adoption of an export restraint may increase the pro…ts of both …rms