INTRAINDUSTRY TRADE AND STRATEGIC INTERACTION - THEORY AND EVIDENCE

We conduct a theory-based empirical study of intraindustry trade in ho mogeneous products. We derive an oligopolistic model of intra-industry trade, which is an extension of the segmented market model of trade, initially proposed by [Brander, J. A., 1981, Intra-industry trade in i dentical commodities, Journal of International Economics 11, 1-14]. Th e empirical implementations of the model are investigated in the conte xt of the petrochemical industry. Our analysis employs a unique data s et containing detailed product and location-specific data on the petro chemical industries in Germany and the United States. Allowing for dif ferent empirical specifications, we find that cross-product variations in bilateral intra-industry trade of petrochemicals are well explaine d by the variables suggested by the theoretical model. (C) 1998 Elsevi er Science B.V.