Strategic Trade Between Two Countries—Exploring the Case of Partial Local Consumer Protection

Authors

  • Iordan Iordanov International Business School 14, Gurko Str. 2140 Botevgrad, Bulgaria and Faculty of Mathematics and Informatics St. Kliment Ohridski University of Sofia 5, James Bourchier Blvd. 1164 Sofia, Bulgaria
  • Andrey Vassilev Bulgarian National Bank 1, Knyaz Alexander I Sq. 1000 Sofia, Bulgaria and Faculty of Mathematics and Informatics Faculty of Economics and Business Administration St. Kliment Ohridski University of Sofia 125, Tsarigradsko Shose Blvd, bl. 3 1113 Sofia, Bulgaria

DOI:

https://doi.org/10.55630/sjc.2017.11.31-43

Keywords:

trade models, Nash equilibrium, difference equations

Abstract

The paper develops a dynamic model of trade between two
countries where the trading entities interact in a strategic context. Consumers
in both countries are endowed with certain incomes and try to acquire
as much as possible of the quantities available on the markets. Consumers
have privileged access to some of the good supplied locally, a form of partial
local protection. Over time, prices are adjusted to respond to the outcomes
of trading. For this setup, we prove the existence of Nash equilibria and
simulate the model numerically in Python to illustrate the possibility of obtaining
different types of price dynamics depending on the price adjustment
rule used.

ACM Computing Classification System (1998): J4, G4, I.6.3.

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Published

2017-11-27

Issue

Vol. 11 No. 1 (2017)

Section

Articles