Unilateral and Multilateral Gains from Trade in International Oligopoly

Constructing a two-agent model of international duopoly with increasing returns, the present paper examines potential gains from free trade. It is shown that under certain conditions, both agents in a country become worse off in free trade than in autarky with no redistribution. Further, the lump-sum compensation can never achieve a Pareto-improvement in such an economy. However, we can find a non-lump-sum redistributive scheme that makes nobody in the country worse off in free trade than in autarky