Product differentiation, voluntary export restraints, and profits

Using a duopoly model of product differentiation with consistent conjectures, we show that, compared with the free-trade equilibrium, voluntary export restraints improve the profits of both the foreign firm and the home firm in both quantity and price competition. The changes in profits of the foreign firm depend on the degree of product differentiation and the nature of competition. © 1996 John Wiley & Sons, Ltd.