EU-US Trade Dilemmas in a Linear Cournot Model

Abstract

The most commonly used models for quantifying trade agreements in the international literature can be divided into two groups. Microeconomic models illustrate pre- and post-negotiation situations with micro-level profit analyses. Macroeconomic models deal with the study of macro-level economic effects. Our aim, using the Cournot model, is to add another category, namely the extension of the microeconomics-based game theory oligopoly tool to the level of countries and regions, to examine the impact of trade agreements. In this article we present the economic dilemmas surrounding the Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States. If the two actors choose an export output level at the same time, a linear Cournot model can be set up. The version of this extended to trade relations identifies the market equilibrium that emerges in a duopoly situation. On the other hand, it establishes the point at which it is worthwhile for the parties to remove tariff barriers.